The analysts covering Inovio Pharmaceuticals, Inc. (NASDAQ:INO) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well. Investors however, have been notably more optimistic about Inovio Pharmaceuticals recently, with the stock price up a majestic 110% to US$29.98 in the past week. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
Following the downgrade, the current consensus from Inovio Pharmaceuticals' eight analysts is for revenues of US$23m in 2020 which - if met - would reflect a huge increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 40% to US$0.70. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$38m and losses of US$0.69 per share in 2020. So there's definitely been a change in sentiment in this update, with the analysts administering a substantial haircut to this year's revenue estimates, while at the same time holding losses per share steady.
The consensus price target rose 47% to US$20.78, seeming to imply that weaker revenue sentiment is not expected to have a major impact on the company's valuation. 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 Inovio Pharmaceuticals analyst has a price target of US$45.00 per share, while the most pessimistic values it at US$8.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Inovio Pharmaceuticals' past performance and to peers in the same industry. One thing stands out from these estimates, which is that Inovio Pharmaceuticals is forecast to grow faster in the future than it has in the past, with revenues expected to grow many times over. If achieved, this would be a much better result than the 14% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 25% next year. Not only are Inovio Pharmaceuticals' revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Inovio Pharmaceuticals after today.
There might be good reason for analyst bearishness towards Inovio Pharmaceuticals, like major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 3 other risks we've identified.
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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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