Market forces rained on the parade of Denali Therapeutics Inc. (NASDAQ:DNLI) shareholders today, when the analysts downgraded their forecasts for this year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. The stock price has risen 6.8% to US$18.31 over the past week. It will be interesting to see if this downgrade motivates investors to start selling their holdings.
Following the latest downgrade, the current consensus, from the 17 analysts covering Denali Therapeutics, is for revenues of US$47m in 2024, which would reflect a substantial 84% reduction in Denali Therapeutics' sales over the past 12 months. Losses are supposed to balloon 184% to US$2.73 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$66m and losses of US$2.61 per share in 2024. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
NasdaqGS:DNLI Earnings and Revenue Growth May 12th 2024
The consensus price target was broadly unchanged at US$38.67, perhaps implicitly signalling that the weaker earnings outlook is not expected to have a long-term impact on the valuation.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 91% by the end of 2024. This indicates a significant reduction from annual growth of 20% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 18% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Denali Therapeutics 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 Denali Therapeutics. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of Denali Therapeutics going forwards.
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 Denali Therapeutics analysts - going out to 2026, and you can see them free on our platform here.
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.
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