Investors in Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) had a good week, as its shares rose 9.6% to close at US$52.10 following the release of its quarterly results. Statutory losses were much smaller than expected, at just US$2.00 per share, even though revenues of US$262k missed analyst expectations by a remarkable 83%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the current consensus, from the ten analysts covering Arena Pharmaceuticals, is for revenues of US$5.51m in 2020, which would reflect a small 2.3% reduction in Arena Pharmaceuticals’ sales over the past 12 months. Losses are forecast to balloon 35% to US$8.75 per share. Before this latest report, the consensus had been expecting revenues of US$6.71m and US$8.89 per share in losses. So there’s definitely been a change in sentiment in this update, with the analysts administering a substantial haircut to next year’s revenue estimates, while at the same time holding losses per share steady.
The consensus price target was broadly unchanged at US$69.25, implying that the business is performing roughly in line with expectations, despite a downwards adjustment to forecast sales next year. 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. The most optimistic Arena Pharmaceuticals analyst has a price target of US$95.00 per share, while the most pessimistic values it at US$50.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast revenue decline of 2.3%, a significant reduction from annual growth of 62% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 21% next year. It’s pretty clear that Arena Pharmaceuticals’ revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
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 Arena Pharmaceuticals analysts – going out to 2024, and you can see them free on our platform here.
That said, it’s still necessary to consider the ever-present spectre of investment risk. We’ve identified 1 warning sign with Arena Pharmaceuticals , and understanding this should be part of your investment process.
If you spot an error that warrants correction, please contact the editor at [email protected] 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. Simply Wall St has no position in the stocks mentioned.
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