Rainbows and Unicorns: MEI Pharma, Inc. (NASDAQ:MEIP) Analysts Just Became A Lot More Optimistic
Shareholders in MEI Pharma, Inc. (NASDAQ:MEIP) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with analysts modelling a real improvement in business performance. The market seems to be pricing in some improvement in the business too, with the stock up 8.4% over the past week, closing at US$0.31. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the latest upgrade, the six analysts covering MEI Pharma provided consensus estimates of US$38m revenue in 2023, which would reflect a sizeable 39% decline on its sales over the past 12 months. Losses are supposed to balloon 28% to US$0.30 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$24m and losses of US$0.65 per share in 2023. We can see there's definitely been a change in sentiment in this update, with the analysts administering a sizeable upgrade to this year's revenue estimates, while at the same time reducing their loss estimates.
View our latest analysis for MEI Pharma
Yet despite these upgrades, the analysts cut their price target 33% to US$1.72, implicitly signalling that the ongoing losses are likely to weigh negatively on MEI Pharma's valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on MEI Pharma, with the most bullish analyst valuing it at US$4.00 and the most bearish at US$0.10 per share. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely differing views on what kind of performance this business can generate. 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.
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 63% by the end of 2023. This indicates a significant reduction from annual growth of 50% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 15% per year. It's pretty clear that MEI Pharma's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting MEI Pharma is moving incrementally towards profitability. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. A lower price target is not intuitively what we would expect from a company whose business prospects are improving - at least judging by these forecasts - but if the underlying fundamentals are strong, MEI Pharma could be one for the watch list.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple MEI Pharma analysts - going out to 2025, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
