The latest analyst coverage could presage a bad day for Heron Therapeutics, Inc. (NASDAQ:HRTX), 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) forecasts went under the knife, suggesting the analysts have soured majorly on the business.
Following the downgrade, the most recent consensus for Heron Therapeutics from its six analysts is for revenues of US$100m in 2021 which, if met, would be a huge 20% increase on its sales over the past 12 months. The loss per share is expected to ameliorate slightly, reducing to US$2.45. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$143m and losses of US$2.21 per share in 2021. 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.NasdaqCM:HRTX Earnings and Revenue Growth August 15th 2021
The consensus price target fell 7.4% to US$33.17, implicitly signalling that lower earnings per share are a leading indicator for Heron Therapeutics' valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Heron Therapeutics, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$23.00 per share. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. 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.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to 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. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of Heron Therapeutics.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Heron Therapeutics 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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