The analysts covering Eton Pharmaceuticals, Inc. (NASDAQ:ETON) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
After this downgrade, Eton Pharmaceuticals’ dual analysts are now forecasting revenues of US$24m in 2021. This would be a substantial 103% 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$0.02 per share this year. Previously, the analysts had been modelling revenues of US$38m and earnings per share (EPS) of US$0.23 in 2021. It looks like analyst sentiment has declined substantially, with a pretty serious reduction to revenue estimates and a large cut to earnings per share numbers as well.
NasdaqGM:ETON Earnings and Revenue Growth August 18th 2021
Analysts made no major changes to their price target of US$12.00, suggesting the downgrades are not expected to have a long-term impact on Eton Pharmaceuticals’ 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. The most optimistic Eton Pharmaceuticals analyst has a price target of US$14.00 per share, while the most pessimistic values it at US$10.00. This shows there is still some diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
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 Eton Pharmaceuticals’ revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 3x growth on an annualised basis. This is compared to a historical growth rate of 2,021% over the past year. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 3.3% per year. Even after the forecast slowdown in growth, it seems obvious that Eton Pharmaceuticals is also expected to grow faster than the wider industry.
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. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the stark change in sentiment, we’d understand if investors became more cautious on Eton Pharmaceuticals after today.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2023, which can be seen for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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