The analysts might have been a bit too bullish on Outset Medical, Inc. (NASDAQ:OM), given that the company fell short of expectations when it released its second-quarter results last week. Unfortunately, Outset Medical delivered a serious earnings miss. Revenues of US$27m were 12% below expectations, and statutory losses ballooned 32% to US$0.66 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

After the latest results, the consensus from Outset Medical's eight analysts is for revenues of US$110.2m in 2024, which would reflect a noticeable 5.3% decline in revenue compared to the last year of performance. Losses are predicted to fall substantially, shrinking 26% to US$2.27. Before this latest report, the consensus had been expecting revenues of US$146.5m and US$1.99 per share in losses. So there's been quite a change-up of views after the recent consensus updates, withthe analysts making a serious cut to their revenue outlook while also expecting losses per share to increase.

The average price target fell 39% to US$3.54, implicitly signalling that lower earnings per share are a leading indicator for Outset Medical's valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Outset Medical, with the most bullish analyst valuing it at US$6.00 and the most bearish at US$1.75 per share. 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. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Outset Medical's past performance and to peers in the same industry. We would highlight that revenue is expected to reverse, with a forecast 10% annualised decline to the end of 2024. That is a notable change from historical growth of 12% over the last three years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 8.2% per year. It's pretty clear that Outset Medical's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Outset Medical. On the negative side, they also downgraded their revenue estimates, and forecasts imply they will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Outset Medical's future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Outset Medical going out to 2026, and you can see them free on our platform here..

You should always think about risks though. Case in point, we've spotted 5 warning signs for Outset Medical you should be aware of, and 1 of them is significant.

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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.