Pfenex Inc. (NYSEMKT:PFNX) Analysts Just Slashed This Year's Estimates

The latest analyst coverage could presage a bad day for Pfenex Inc. (NYSEMKT:PFNX), 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) forecasts went under the knife, suggesting analysts have soured majorly on the business.

Following the latest downgrade, the four analysts covering Pfenex provided consensus estimates of US$40m revenue in 2020, which would reflect a disturbing 21% decline on its sales over the past 12 months. After this downgrade, the company is anticipated to report a loss of US$0.27 in 2020, a sharp decline from a profit over the last year. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$47m and losses of US$0.10 per share in 2020. 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.

See our latest analysis for Pfenex

The consensus price target was broadly unchanged at US$18.00, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the 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 Pfenex analyst has a price target of US$20.00 per share, while the most pessimistic values it at US$15.00. With such a narrow range of valuations, analysts apparently share similar views on what they think the business is worth.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 21%, a significant reduction from annual growth of 15% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 16% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Pfenex is expected to lag 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 Pfenex. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Pfenex's revenues are expected to grow slower than the wider market. We're also surprised to see that the price target went unchanged. Still, deteriorating business conditions (assuming accurate forecasts!) can be a leading indicator for the stock price, so we wouldn't blame investors for being more cautious on Pfenex after the downgrade.

After a downgrade like this, it's pretty clear that previous forecasts were too optimistic. What's more, we've spotted several possible issues with Pfenex's business, like dilutive stock issuance over the past year. For more information, you canclick here to discover this and the 2 other risks we've identified.

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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