Celebrations may be in order for Mesoblast Limited (ASX:MSB) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects. Mesoblast has also found favour with investors, with the stock up a noteworthy 25% to AU$4.09 over the past week. Could this upgrade be enough to drive the stock even higher?
After this upgrade, Mesoblast's nine analysts are now forecasting revenues of US$128m in 2021. This would be a huge improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 79% to US$0.036. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$69m and losses of US$0.051 per share in 2021. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to this year's revenue estimates, while at the same time reducing their loss estimates.
There was no major change to the consensus price target of AU$4.16, perhaps suggesting that the analysts remain concerned about ongoing losses despite the improved earnings and revenue outlook. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Mesoblast analyst has a price target of AU$7.00 per share, while the most pessimistic values it at AU$1.68. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Mesoblast's past performance and to peers in the same industry. For example, we noticed that Mesoblast's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow manyfold, well above its historical decline of 1.8% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 11% next year. Not only are Mesoblast's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The most important thing here is that analysts reduced their loss per share estimates for this year, reflecting increased optimism around Mesoblast's prospects. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. The lack of change in the price target is puzzling, but with a serious upgrade to this year's earnings expectations, it might be time to take another look at Mesoblast.
It's great to see the analysts upgrading their estimates, but the biggest highlight to us is that the business is expected to become profitable in the foreseeable future. You can learn more about these forecasts, for free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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