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The analysts covering Sage Therapeutics, Inc. (NASDAQ:SAGE) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Shares are up 6.3% to US$83.45 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the downgrade, the consensus from 15 analysts covering Sage Therapeutics is for revenues of US$23m in 2021, implying a concerning 98% decline in sales compared to the last 12 months. Following this this downgrade, earnings are now expected to tip over into loss-making territory, with the analysts forecasting losses of US$7.78 per share in 2021. Yet before this consensus update, the analysts had been forecasting revenues of US$194m and losses of US$2.82 per share in 2021. 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 was broadly unchanged at US$101, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Sage Therapeutics analyst has a price target of US$187 per share, while the most pessimistic values it at US$70.00. 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.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with a forecast 98% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 16,076% over the last year. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 20% per year. It's pretty clear that Sage Therapeutics' revenues are expected to perform substantially worse 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 Sage Therapeutics. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Sage Therapeutics' revenues are expected to grow slower than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn't be surprised if investors were a bit wary of Sage Therapeutics.
So things certainly aren't looking great, and you should also know that we've spotted some potential warning signs with Sage Therapeutics, including dilutive stock issuance over the past year. Learn more, and discover the 1 other concern 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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