Shareholders in Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) may be thrilled to learn that the analysts have just delivered a major upgrade to their near-term forecasts. Consensus estimates suggest investors could expect greatly increased statutory revenues and earnings per share, with the analysts modelling a real improvement in business performance.
Following the upgrade, the current consensus from Lexicon Pharmaceuticals’ four analysts is for revenues of US$105m in 2021 which – if met – would reflect a huge 339% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 98% to US$0.0086. However, before this estimates update, the consensus had been expecting revenues of US$58m and US$0.29 per share in losses. So there’s been quite a change-up of views after the recent consensus updates, with the analysts making a sizeable increase to their revenue forecasts while also reducing the estimated loss as the business grows towards breakeven.
It will come as no surprise to learn that the analysts have increased their price target for Lexicon Pharmaceuticals 9.7% to US$8.50 on the back of these upgrades. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Lexicon Pharmaceuticals at US$13.00 per share, while the most bearish prices it at US$3.00. 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.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It’s clear from the latest estimates that Lexicon Pharmaceuticals’ rate of growth is expected to accelerate meaningfully, with the forecast 3x annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 9.7% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 18% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Lexicon Pharmaceuticals to grow faster than the wider industry.
The Bottom Line
The highlight for us was that the consensus reduced its estimated losses this year, perhaps suggesting Lexicon Pharmaceuticals is moving incrementally towards profitability. Fortunately, analysts also upgraded their revenue estimates, and our data indicates sales are expected to perform better than the wider market. Given that the consensus looks almost universally bullish, with a substantial increase to forecasts and a higher price target, Lexicon Pharmaceuticals could be worth investigating further.
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 Lexicon Pharmaceuticals analysts – going out to 2025, and you can see them 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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