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It's been a mediocre week for Denali Therapeutics Inc. (NASDAQ:DNLI) shareholders, with the stock dropping 19% to US$19.78 in the week since its latest yearly results. Despite revenues of US$27m falling 6.1% short of expectations, statutory losses of US$2.07 per share were well contained, and in line with analyst models. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Denali Therapeutics after the latest results.
Taking into account the latest results, the current consensus, from the eight analysts covering Denali Therapeutics, is for revenues of US$20.9m in 2020, which would reflect a concerning 22% reduction in Denali Therapeutics's sales over the past 12 months. Losses are expected to be contained, narrowing 16% from last year to US$2.39, on a statutory basis. Before this latest report, the consensus had been expecting revenues of US$44.5m and US$2.47 per share in losses. So there's been quite a change-up of views after the latest results, with analysts making a serious cut to their revenue forecasts while also granting a slight bump in to the earnings per share numbers.
There was no major change to the US$28.42 average analyst price target, suggesting that the adjustments to revenue and earnings are not expected to have a long-term impact on the business. 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. There are some variant perceptions on Denali Therapeutics, with the most bullish analyst valuing it at US$37.00 and the most bearish at US$20.00 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
In addition, we can look to Denali Therapeutics's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. One more thing stood out to us about these estimates, and it's that Denali Therapeutics's decline is expected to slow down, with revenues forecast to fall 22% next year, improving on a historical decline of 79% a year over the past year. Compare this against analyst estimates for companies in the wider market, which suggest that revenues (in aggregate) are expected to decline 16% next year. So it's pretty clear that, while it does have declining revenues, at least analysts expect Denali Therapeutics to suffer less severely than the wider market.
The Bottom Line
The most important thing to note from these estimates is that the consensus increased its forecast losses next year, suggesting all may not be well at Denali Therapeutics. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Yet - earnings are more important to the intrinsic value of the business. The consensus price target held steady at US$28.42, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Denali Therapeutics analysts - going out to 2024, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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