The analysts covering Veru Inc. (NASDAQ:VERU) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Surprisingly the share price has been buoyant, rising 51% to US$19.08 in the past 7 days. With such a sharp increase, it seems brokers may have seen something that is not yet being priced in by the wider market.
After the downgrade, the three analysts covering Veru are now predicting revenues of US$98m in 2023. If met, this would reflect a major 86% improvement in sales compared to the last 12 months. Per-share losses are expected to creep up to US$0.64. Yet before this consensus update, the analysts had been forecasting revenues of US$82m and losses of US$0.51 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts significantly increasing their revenue forecasts while also expecting losses per share to increase. It looks like the revenue growth will not be achieved without incremental costs.
The consensus price target stayed unchanged at US$35.20, seeming to suggest that higher forecast losses are not expected to have a long term impact on the 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. Currently, the most bullish analyst values Veru at US$55.00 per share, while the most bearish prices it at US$24.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. The analysts are definitely expecting Veru's growth to accelerate, with the forecast 65% annualised growth to the end of 2023 ranking favourably alongside historical growth of 32% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 9.2% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Veru to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses next year, suggesting all may not be well at Veru. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Veru after the downgrade.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Veru analysts - going out to 2024, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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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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