One thing we could say about the analysts on Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic.
After the downgrade, the six analysts covering Catalyst Pharmaceuticals are now predicting revenues of US$127m in 2020. If met, this would reflect a satisfactory 6.4% improvement in sales compared to the last 12 months. Statutory earnings per share are supposed to reduce 9.6% to US$0.38 in the same period. Prior to this update, the analysts had been forecasting revenues of US$141m and earnings per share (EPS) of US$0.39 in 2020. Indeed, we can see that analyst sentiment has declined measurably after the new consensus came out, with a substantial drop in revenue estimates and a small dip in EPS estimates to boot.
The consensus price target fell 11% to US$7.79, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Catalyst Pharmaceuticals, with the most bullish analyst valuing it at US$10.00 and the most bearish at US$5.00 per share. 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that Catalyst Pharmaceuticals' revenue growth is expected to slow, with forecast 6.4% increase next year well below the historical 797% growth over the last year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 24% per year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Catalyst Pharmaceuticals.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Catalyst Pharmaceuticals' revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Catalyst Pharmaceuticals' future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Catalyst Pharmaceuticals after today.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Catalyst Pharmaceuticals going out to 2024, and you can see them free on our platform here.
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