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Today is shaping up negative for Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
Following the downgrade, the latest consensus from Recursion Pharmaceuticals' five analysts is for revenues of US$44m in 2022, which would reflect a major 238% improvement in sales compared to the last 12 months. Losses are supposed to balloon 30% to US$1.60 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$104m and losses of US$1.46 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 16% to US$16.20, implicitly signalling that lower earnings per share are a leading indicator for Recursion Pharmaceuticals' valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Recursion Pharmaceuticals at US$36.00 per share, while the most bearish prices it at US$9.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Recursion Pharmaceuticals' growth to accelerate, with the forecast 4x annualised growth to the end of 2022 ranking favourably alongside historical growth of 100% per annum over the past year. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 12% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Recursion Pharmaceuticals to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Recursion Pharmaceuticals. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. 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 Recursion Pharmaceuticals after today.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Recursion Pharmaceuticals' business, like dilutive stock issuance over the past year. 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.