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One thing we could say about the analysts on MediPharm Labs Corp. (TSE:LABS) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. 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 MediPharm Labs' four analysts is for revenues of CA$24m in 2022, which would reflect a notable 15% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 55% to CA$0.08. However, before this estimates update, the consensus had been expecting revenues of CA$33m and CA$0.077 per share in losses. 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 40% to CA$0.15, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic MediPharm Labs analyst has a price target of CA$0.20 per share, while the most pessimistic values it at CA$0.10. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the MediPharm Labs' past performance and to peers in the same industry. For example, we noticed that MediPharm Labs' rate of growth is expected to accelerate meaningfully, with revenues forecast to exhibit 20% growth to the end of 2022 on an annualised basis. That is well above its historical decline of 44% a year over the past three years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 23% annually. So while MediPharm Labs' revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall 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 MediPharm Labs. There was also a drop in their revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as 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. Given the stark change in sentiment, we'd understand if investors became more cautious on MediPharm Labs after today.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple MediPharm Labs analysts - going out to 2023, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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