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Arcus Biosciences, Inc. (NYSE:RCUS) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The analysts have sharply increased their revenue numbers, with a view that Arcus Biosciences will make substantially more sales than they'd previously expected.
Following the upgrade, the consensus from eight analysts covering Arcus Biosciences is for revenues of US$63m in 2021, implying an uncomfortable 19% decline in sales compared to the last 12 months. Losses are supposed to balloon 41% to US$3.17 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$57m and losses of US$3.20 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, withthe analysts noticeably increasing their revenue forecasts while also expecting losses per share to hold steady.
There were no major changes to the US$53.30 consensus price target despite the higher revenue estimates, with the analysts seeming to believe that ongoing losses have a larger impact on the valuation than growing sales. 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 Arcus Biosciences, with the most bullish analyst valuing it at US$70.00 and the most bearish at US$40.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 19% by the end of 2021. This indicates a significant reduction from annual growth of 104% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 18% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Arcus Biosciences is expected to lag the wider industry.
The Bottom Line
The most important thing here is that analysts reduced their loss per share estimates for this year, reflecting increased optimism around Arcus Biosciences' prospects. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow slower than the wider market. Given that analysts appear to be expecting substantial improvement in the sales pipeline, now could be the right time to take another look at Arcus Biosciences.
These earnings upgrades look like a sterling endorsement, but before diving in - you should know that we've spotted 5 potential concerns with Arcus Biosciences, including recent substantial insider selling. You can learn more, and discover the 3 other concerns we've identified, for free on our platform here.
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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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