The latest analyst coverage could presage a bad day for Novavax, Inc. (NASDAQ:NVAX), 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.
After this downgrade, Novavax’s five analysts are now forecasting revenues of US$971m in 2020. This would be a huge improvement in sales compared to the last 12 months. The losses are expected to disappear over the next year or so, with forecasts for a profit of US$6.97 per share this year. Before this latest update, the analysts had been forecasting revenues of US$1.2b and earnings per share (EPS) of US$9.10 in 2020. Indeed, we can see that the analysts are a lot more bearish about Novavax’s prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.
Despite the cuts to forecast earnings, there was no real change to the US$221 price target, showing that the analysts don’t think the changes have a meaningful impact on its intrinsic value. 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. There are some variant perceptions on Novavax, with the most bullish analyst valuing it at US$290 and the most bearish at US$105 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Novavax’s past performance and to peers in the same industry. For example, we noticed that Novavax’s rate of growth is expected to accelerate meaningfully, with revenues forecast to grow manyfold, well above its historical decline of 0.7% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 21% next year. So it looks like Novavax is expected to grow faster than its competitors, at least for a while.
The Bottom Line
The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The lack of change in the price target is puzzling in light of the downgrade but, with a serious decline expected this year, we wouldn’t be surprised if investors were a bit wary of Novavax.
That said, the analysts might have good reason to be negative on Novavax, given major dilution from new stock issuance in the past year. For more information, you can click here to discover this and the 1 other warning sign 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.
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. 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.