Investors in Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) had a good week, as its shares rose 4.9% to close at US$34.14 following the release of its second-quarter results. Revenues of US$24m beat expectations by a respectable 6.2%, although statutory losses per share increased. Arrowhead Pharmaceuticals lost US$0.20, which was 82% more than what the analysts had included in their models. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Following the recent earnings report, the consensus from ten analysts covering Arrowhead Pharmaceuticals is for revenues of US$105.2m in 2020, implying a stressful 24% decline in sales compared to the last 12 months. The company is forecast to report a statutory loss of US$0.61 in 2020, a sharp decline from a profit over the last year. Before this latest report, the consensus had been expecting revenues of US$90.9m and US$0.41 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts lifting this year's revenue estimates, while at the same time increasing their loss per share numbers to reflect the cost of achieving this growth.
The consensus price target stayed unchanged at US$61.70, seeming to suggest that higher forecast losses are not expected to have a long term impact on the valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Arrowhead Pharmaceuticals at US$81.00 per share, while the most bearish prices it at US$29.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 24%, a significant reduction from annual growth of 73% 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 21% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Arrowhead Pharmaceuticals is expected to lag the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Arrowhead Pharmaceuticals. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. 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.
With that in mind, we wouldn't be too quick to come to a conclusion on Arrowhead Pharmaceuticals. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Arrowhead Pharmaceuticals going out to 2024, and you can see them free on our platform here..
Before you take the next step you should know about the 3 warning signs for Arrowhead Pharmaceuticals that we have uncovered.
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