Shareholders in Akorn, Inc. (NASDAQ:AKRX) had a terrible week, as shares crashed 21% to US$1.16 in the week since its latest yearly results. It looks like the results were pretty good overall. While revenues of US$682m were in line with analyst predictions, statutory losses were much smaller than expected, with Akorn losing US$1.80 per share. 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Akorn after the latest results.
Taking into account the latest results, Akorn's five analysts currently expect revenues in 2020 to be US$669.9m, approximately in line with the last 12 months. Per-share statutory losses are expected to explode, reaching US$0.06 per share. Before this earnings announcement, analysts had been forecasting revenues of US$708.0m and losses of US$0.14 per share in 2020. While revenue forecasts have been revised downwards, analysts look to have become more optimistic on the company's earnings power, given the great increase in to earnings per share forecasts.
Analysts have cut their price target 20% to US$4.00 per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. 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 Akorn, with the most bullish analyst valuing it at US$8.00 and the most bearish at US$2.00 per share. 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.
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. Over the past five years, revenues have declined around 4.7% annually. On the bright side, analysts expect the decline to level off somewhat, with the forecast for a 1.8% decline in revenue next year. Compare this against analyst estimates for companies in the wider market, which suggest that revenues (in aggregate) are expected to decline 5.1% next year. So it's pretty clear that, while it does have declining revenues, at least analysts expect Akorn to suffer less severely than the wider market.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Even so, earnings are more important to the intrinsic value of the business. The consensus price target fell measurably, with analysts seemingly not reassured by the latest results, leading to a lower estimate of Akorn's future valuation.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Akorn analysts - going out to 2024, and you can see them free on our platform here.
You can also see whether Akorn is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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