As you might know, Mesoblast Limited (ASX:MSB) recently reported its first-quarter numbers. Revenues of US$17m crushed expectations, although expenses also blew out, with the company reporting a loss per share of US$0.011, 75% bigger 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. We thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
Taking into account the latest results, the latest consensus from Mesoblast's eight analysts is for revenues of US$48.8m in 2020, which would reflect a sizeable 120% improvement in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 229% to US$0.50. Before this earnings announcement, analysts had been forecasting revenues of US$42.9m and losses of US$0.13 per share in 2020. Although sales sentiment looks to be improving, analysts have made a pretty serious reduction to per-share earnings estimates, showing a sharp increase in pessimism after earnings.
It will come as a surprise to learn that the consensus price target rose 72% to AU$5.73, with analysts clearly more interested in growing revenue, even as losses intensify. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Mesoblast analyst has a price target of AU$10.50 per share, while the most pessimistic values it at AU$1.60. 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.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Mesoblast's past performance and to peers in the same market. One thing stands out from these estimates, which is that analysts are forecasting Mesoblast to grow faster in the future than it has in the past, with revenues expected to grow 120%. If achieved, this would be a much better result than the 7.9% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in the market are forecast to see their revenue grow 10% per year. Although Mesoblast's revenues are expected to improve, it seems that analysts are also expecting it to grow faster than the wider market.
The Bottom Line
Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Mesoblast. Long-term earnings power is much more important than next year's profits. We have forecasts for Mesoblast going out to 2024, and you can see them free on our platform here.
You can also see whether Mesoblast is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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