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The analysts covering Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business. The stock price has risen 5.1% to US$46.05 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
After the downgrade, the consensus from Arrowhead Pharmaceuticals' eleven analysts is for revenues of US$67m in 2021, which would reflect a disturbing 46% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching US$1.08 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$90m and losses of US$0.94 per share in 2021. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to next year's revenue estimates, while at the same time increasing their loss per share forecasts.
There was no major change to the consensus price target of US$67.60, signalling that the business is performing roughly in line with expectations, despite lower earnings per share forecasts. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Arrowhead Pharmaceuticals analyst has a price target of US$90.00 per share, while the most pessimistic values it at US$31.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 46%, a significant reduction from annual growth of 68% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 21% next year. It's pretty clear that Arrowhead Pharmaceuticals' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Arrowhead Pharmaceuticals. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Arrowhead Pharmaceuticals' revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected next year, we wouldn't be surprised if investors were a bit wary of Arrowhead Pharmaceuticals.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Arrowhead Pharmaceuticals going out to 2025, 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 downgrading 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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