One thing we could say about the analysts on Xenon Pharmaceuticals Inc. (NASDAQ:XENE) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. Shares are up 4.8% to US$38.02 in the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
After the downgrade, the consensus from Xenon Pharmaceuticals' nine analysts is for revenues of US$16m in 2022, which would reflect a painful 25% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching US$2.06 per share. However, before this estimates update, the consensus had been expecting revenues of US$18m and US$2.06 per share in losses. 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 making no real change to the loss per share numbers.
Analysts lifted their price target 7.7% to US$49.36 per share, with reduced revenue estimates seemingly not expected to have a long-term impact on the intrinsic value of the business. 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. Currently, the most bullish analyst values Xenon Pharmaceuticals at US$60.00 per share, while the most bearish prices it at US$35.00. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Xenon Pharmaceuticals' past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 44% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 54% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 15% annually for the foreseeable future. It's pretty clear that Xenon Pharmaceuticals' revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. There was also an increase in the price target, suggesting that there is more optimism baked into the forecasts than there was previously. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Xenon Pharmaceuticals going forwards.
After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Xenon Pharmaceuticals' business, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 2 other concerns we've identified.
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.
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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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