Analysts might have been a bit too bullish on Mesoblast Limited (ASX:MSB), given that the company fell short of expectations when it released its half-year results last week. The numbers were fairly weak, with sales of US$21m missing analyst predictions by 7.8%, and (statutory) losses of US$0.049 per share being slightly larger than what analysts had expected. 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. So we gathered the latest post-earnings forecasts to see what analysts' statutory forecasts suggest is in store for next year.
Taking into account the latest results, the current consensus from Mesoblast's five analysts is for revenues of US$49.9m in 2020, which would reflect a major 122% increase on its sales over the past 12 months. Statutory losses are forecast to balloon 24% to US$0.11 per share. Yet prior to the latest earnings, analysts had been forecasting revenues of US$54.1m and losses of US$0.091 per share in 2020. Analysts seem less optimistic after the recent results, reducing their sales forecasts and making a pretty serious reduction to earnings per share forecasts.
The average analyst price target lifted 54% to AU$5.15, clearly signalling that the weaker revenue and EPS outlook are not expected to weigh on the stock over the longer term. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Mesoblast, with the most bullish analyst valuing it at AU$5.15 and the most bearish at AU$5.15 per share. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
It can also be useful to step back and take a broader view of how analyst forecasts compare to Mesoblast's performance in recent years. One thing stands out from these estimates, which is that analysts are forecasting Mesoblast to grow faster in the future than it has in the past, with revenues expected to grow 122%. If achieved, this would be a much better result than the 6.2% annual decline over the past five years. Compare this against analyst estimates for the wider market, which suggest that (in aggregate) market revenues are expected to grow 12% next year. So it looks like Mesoblast is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting Mesoblast is moving incrementally towards profitability. Unfortunately analysts also downgraded their revenue estimates, although industry data suggests that Mesoblast's revenues are expected to grow faster than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
With that in mind, we wouldn't be too quick to come to a conclusion on Mesoblast. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Mesoblast analysts - going out to 2024, and you can see them free on our platform here.
It might also be worth considering whether Mesoblast's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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