Last week, you might have seen that Endologix, Inc. (NASDAQ:ELGX) released its full-year result to the market. The early response was not positive, with shares down 2.8% to US$0.83 in the past week. Revenues came in at US$143m, in line with expectations, while statutory losses per share were substantially higher than expected, at US$3.84 per share. Following the result, 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 collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Taking into account the latest results, Endologix's seven analysts currently expect revenues in 2020 to be US$146.1m, approximately in line with the last 12 months. Statutory losses are forecast to balloon 25% to US$2.90 per share. Before this earnings announcement, analysts had been forecasting revenues of US$150.3m and losses of US$2.67 per share in 2020. While revenue forecasts have been revised downwards, analysts look to have become more optimistic on the company's earnings power, given the to earnings per share forecasts.
The average analyst price target fell 40% to US$3.80, implicitly signalling that lower earnings per share are a leading indicator for Endologix's valuation. 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. The most optimistic Endologix analyst has a price target of US$7.00 per share, while the most pessimistic values it at US$1.00. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
In addition, we can look to Endologix's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. It's also worth noting that the years of declining sales look to have come to an end, with the forecast for flat revenues next year. Historically, Endologix's sales have shrunk approximately 0.6% annually 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 7.9% next year. Although Endologix's revenues are expected to improve, it seems that analysts are still expecting it to grow slower than the wider market.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses next year, perhaps suggesting Endologix is moving incrementally towards profitability. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Endologix's future valuation.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Endologix analysts - going out to 2023, and you can see them free on our platform here.
You can also view our analysis of Endologix's balance sheet, and whether we think Endologix is carrying too much debt, for free on our platform here.
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