It's been a good week for Fate Therapeutics, Inc. (NASDAQ:FATE) shareholders, because the company has just released its latest annual results, and the shares gained 4.5% to US$7.14. The results look positive overall; while revenues of US$64m were in line with analyst predictions, statutory losses were 4.3% smaller than expected, with Fate Therapeutics losing US$1.64 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the 16 analysts covering Fate Therapeutics provided consensus estimates of US$4.81m revenue in 2024, which would reflect a sizeable 92% decline over the past 12 months. Per-share losses are supposed to see a sharp uptick, reaching US$1.90. Before this earnings announcement, the analysts had been modelling revenues of US$5.97m and losses of US$2.04 per share in 2024. We can see there's definitely been a change in sentiment in this update, with the analysts administering a meaningful downgrade to next year's revenue estimates, while at the same time reducing their loss estimates.
The consensus price target rose 19% to US$7.53, with the analysts increasingly optimistic about shrinking losses, despite the expected decline in revenue. 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. The most optimistic Fate Therapeutics analyst has a price target of US$12.00 per share, while the most pessimistic values it at US$2.00. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
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. We would highlight that revenue is expected to reverse, with a forecast 92% annualised decline to the end of 2024. That is a notable change from historical growth of 47% 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 18% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Fate Therapeutics is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply they will perform worse than the wider industry. With that said, earnings are more important to the long-term value of the business. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Fate Therapeutics going out to 2026, and you can see them free on our platform here..
You still need to take note of risks, for example - Fate Therapeutics has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.