Shareholders in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals.
Following the upgrade, the consensus from four analysts covering Lexicon Pharmaceuticals is for revenues of US$7.8m in 2021, implying a stressful 76% decline in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 20% to US$0.78. Yet before this consensus update, the analysts had been forecasting revenues of US$5.5m and losses of US$0.99 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 next year's revenue estimates, while at the same time reducing their loss estimates.
The consensus price target fell 12%, to US$2.37, suggesting that the analysts remain pessimistic on the company, despite the improved earnings and revenue outlook. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Lexicon Pharmaceuticals analyst has a price target of US$3.00 per share, while the most pessimistic values it at US$2.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Lexicon Pharmaceuticals shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 76%, a significant reduction from annual growth of 19% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 20% annually for the foreseeable future. It's pretty clear that Lexicon Pharmaceuticals' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting Lexicon Pharmaceuticals is moving incrementally towards profitability. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. The declining price target is a puzzle, but still - with a serious upgrade to next year's expectations, it might be time to take another look at Lexicon Pharmaceuticals.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Lexicon Pharmaceuticals analysts - going out to 2024, and you can see them 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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