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Shareholders in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) had a terrible week, as shares crashed 23% to US$67.10 in the week since its latest third-quarter results. Statutory losses were a bit smaller than expected, at just US$1.69 per share, even though revenues of US$20k missed analyst expectations by a shocking 99%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the consensus forecast from Arena Pharmaceuticals' twelve analysts is for revenues of US$29.1m in 2021, which would reflect a substantial 786% improvement in sales compared to the last 12 months. Per-share losses are predicted to creep up to US$7.67. Before this earnings announcement, the analysts had been modelling revenues of US$32.8m and losses of US$7.93 per share in 2021. We can see there's definitely been a change in sentiment in this update, with the analysts administering a meaningful downgrade to next year's revenue estimates, while at the same time reducing their loss estimates.
The consensus price target was broadly unchanged at US$94.38, implying that the business is performing roughly in line with expectations, despite adjustments to both revenue and earnings estimates. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Arena Pharmaceuticals analyst has a price target of US$116 per share, while the most pessimistic values it at US$76.00. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Arena Pharmaceuticals' past performance and to peers in the same industry. It's clear from the latest estimates that Arena Pharmaceuticals' rate of growth is expected to accelerate meaningfully, with the forecast 8x revenue growth noticeably faster than its historical growth of 44%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 21% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Arena Pharmaceuticals to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. They also downgraded their revenue estimates, although industry data suggests that Arena Pharmaceuticals' revenues are expected to grow faster than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Arena Pharmaceuticals analysts - going out to 2024, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 4 warning signs for Arena Pharmaceuticals you should be aware of.
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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