One thing we could say about the analysts on Heron Therapeutics, Inc. (NASDAQ:HRTX) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. 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.
After the downgrade, the six analysts covering Heron Therapeutics are now predicting revenues of US$100m in 2021. If met, this would reflect a substantial 20% improvement in sales compared to the last 12 months. Losses are forecast to narrow 2.9% to US$2.45 per share. Yet before this consensus update, the analysts had been forecasting revenues of US$143m and losses of US$2.21 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 fell 7.4% to US$33.17, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. 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. The most optimistic Heron Therapeutics analyst has a price target of US$60.00 per share, while the most pessimistic values it at US$23.00. 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. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. The analysts are definitely expecting Heron Therapeutics' growth to accelerate, with the forecast 44% annualised growth to the end of 2021 ranking favourably alongside historical growth of 9.1% per annum over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 10% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Heron Therapeutics is expected to grow much faster than its 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 Heron Therapeutics. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Heron Therapeutics analysts - going out to 2023, and you can see them free on our platform here.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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.
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