The latest analyst coverage could presage a bad day for ChemoCentryx, Inc. (NASDAQ:CCXI), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. 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.
Following the latest downgrade, the seven analysts covering ChemoCentryx provided consensus estimates of US$38m revenue in 2021, which would reflect a concerning 45% decline on its sales over the past 12 months. Per-share losses are expected to explode, reaching US$1.90 per share. However, before this estimates update, the consensus had been expecting revenues of US$57m and US$1.60 per share in losses. Ergo, there’s been a clear change in sentiment, with the analysts administering a notable cut to this year’s revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 43% to US$50.00, implicitly signalling that lower earnings per share are a leading indicator for ChemoCentryx’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. Currently, the most bullish analyst values ChemoCentryx at US$101 per share, while the most bearish prices it at US$17.00. 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.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the ChemoCentryx’s past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 55% annualised revenue decline to the end of 2021. That is a notable change from historical growth of 20% 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 14% annually for the foreseeable future. It’s pretty clear that ChemoCentryx’s revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that ChemoCentryx’s revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we’d understand if readers now felt a bit wary of ChemoCentryx.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for ChemoCentryx going out to 2025.
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.