The latest analyst coverage could presage a bad day for Clovis Oncology, Inc. (NASDAQ:CLVS), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue estimates were cut sharply as analysts signalled a weaker outlook – perhaps a sign that investors should temper their expectations as well. Surprisingly the share price has been buoyant, rising 19% to US$2.04 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the downgrade, the current consensus from Clovis Oncology’s four analysts is for revenues of US$166m in 2022 which – if met – would reflect a solid 12% increase on its sales over the past 12 months. Losses are expected to be contained, narrowing 18% from last year to US$1.67. Yet before this consensus update, the analysts had been forecasting revenues of US$186m and losses of US$1.54 per share in 2022. 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 expecting losses per share to increase.
The consensus price target fell 20% to US$4.38, implicitly signalling that lower earnings per share are a leading indicator for Clovis Oncology’s valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Clovis Oncology analyst has a price target of US$8.00 per share, while the most pessimistic values it at US$1.50. We would probably assign less value to the forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. 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. It’s pretty clear that there is an expectation that Clovis Oncology’s revenue growth will slow down substantially, with revenues to the end of 2022 expected to display 12% growth on an annualised basis. This is compared to a historical growth rate of 32% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 13% annually. Factoring in the forecast slowdown in growth, it looks like Clovis Oncology is forecast to grow at about the same rate as the wider 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 Clovis Oncology. Lamentably, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the market itself. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Clovis Oncology’s future valuation. Given the stark change in sentiment, we’d understand if investors became more cautious on Clovis Oncology after today.
There might be good reason for analyst bearishness towards Clovis Oncology, like dilutive stock issuance over the past year. For more information, you can click here to discover this and the 4 other warning signs 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.