It's been a mediocre week for Spero Therapeutics, Inc. (NASDAQ:SPRO) shareholders, with the stock dropping 12% to US$6.79 in the week since its latest yearly results. Sales hit US$18m in line with forecasts, although the company reported a statutory loss per share of US$3.35 that was somewhat smaller than analysts expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what analysts' statutory forecasts suggest is in store for next year.
Following the recent earnings report, the consensus fromseven analysts covering Spero Therapeutics expects revenues of US$13.2m in 2020, implying a stressful 27% decline in sales compared to the last 12 months. Losses are expected to be contained, narrowing 18% from last year to US$3.96, on a statutory basis. Yet prior to the latest earnings, analysts had been forecasting revenues of US$13.5m and losses of US$3.63 per share in 2020. Although analysts have lowered their sales forecasts, they've also made a their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.
The average analyst price target was broadly unchanged at US$23.50, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic Spero Therapeutics analyst has a price target of US$35.00 per share, while the most pessimistic values it at US$7.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different 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 to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. We would highlight that sales are expected to reverse, with the forecast 27% revenue decline a notable change from historical growth of 100% over the last three years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 15% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Spero Therapeutics to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts reduced their loss per share estimates for next year, perhaps highlighting increased optimism around Spero Therapeutics's prospects. Unfortunately, analysts also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider market. Even so, earnings per share are more important to the intrinsic value of the business. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Spero Therapeutics. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for Spero Therapeutics going out to 2024, and you can see them free on our platform here..
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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