RedHill Biopharma Ltd. (NASDAQ:RDHL) shareholders are probably feeling a little disappointed, since its shares fell 3.9% to US$2.74 in the week after its latest quarterly results. Revenues of US$22m came in a modest 7.7% below forecasts. Statutory losses were a relative bright spot though, with a per-share loss of US$0.05 coming in a substantial 77% smaller than what the analysts had expected. 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 collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the seven analysts covering RedHill Biopharma are now predicting revenues of US$129.1m in 2022. If met, this would reflect a major 52% improvement in sales compared to the last 12 months. The loss per share is expected to greatly reduce in the near future, narrowing 85% to US$0.28. Before this earnings announcement, the analysts had been modelling revenues of US$144.5m and losses of US$0.43 per share in 2022. We can see there’s definitely been a change in sentiment in this update, with the analysts administering a meaningful downgrade to next year’s revenue estimates, while at the same time reducing their loss estimates.
The analysts have cut their price target 16% to US$15.79per share, suggesting that the declining revenue was a more crucial indicator than the forecast reduction in losses. 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 RedHill Biopharma at US$26.00 per share, while the most bearish prices it at US$9.00. 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 analysts think this business will perform. With this in mind, we wouldn’t rely too heavily 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 RedHill Biopharma’s past performance and to peers in the same industry. We would highlight that RedHill Biopharma’s revenue growth is expected to slow, with the forecast 40% annualised growth rate until the end of 2022 being well below the historical 77% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 4.2% annually. So it’s pretty clear that, while RedHill Biopharma’s revenue growth is expected to slow, it’s still expected to grow faster than the industry itself.
The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. They also downgraded their revenue estimates, although industry data suggests that RedHill Biopharma’s revenues are expected to grow faster than the wider industry. Yet – earnings are more important to the intrinsic value of the business. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
Following on from that line of thought, we think that 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 RedHill Biopharma going out to 2023, 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 2 warning signs with RedHill Biopharma , and understanding these should be part of your investment process.
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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.