Despite the very strong gains in cannabis stocks, there were also several sharp sell-offs lately that caught investors off guard. Much of that weakness is the result of recent earnings results. Although major players such as Aurora Cannabis (ACB) have seen their revenue grow in the wake of the legalization of Canadian recreational cannabis, it's unclear when these companies will become sustainably profitable.
Meanwhile, widely followed cannabis analyst Brett Hundley did a deep dive on Aurora Cannabis, Tilray (TLRY) and The Green Organic Dutchman (TGODF) in a note on Monday.
Hundley updated his Aurora model, following the company's fiscal Q3 earnings report earlier this month:
We now expect positive EBITDA of $3MM in Q4 compared to previous IFRS-based expectations of a loss of $21.9MM. As we adjust forward EBITDA expectations for FY20 and FY21, our estimates drop across the board, due mainly to lower revenue expectations as we alter views around production, sale and pricing. For FY21, we now anticipate EBITDA of $246.2MM, a meaningful decline from our previous forecast of $340.9MM. If we look at our FY21 EBITDA estimate in terms of margin, we now anticipate a 24.2% return on sales vs.a previous margin view of 27.2%.
The analyst reiterates a Neutral rating on ACB stock without providing a price target.
Most of the Street is more confident than Hundley's sidelined stance, with TipRanks analytics showcasing ACB as a Strong Buy. Based on 7 analysts polled by in the last 3 months, 6 rate a Buy on Aurora Cannabis stock while only Hundley maintains a Hold. The 12-month average price target stands at $9.21, marking a nearly 10% upside from where the stock is currently trading. (Read more on ACB)
Next up is Tilray. The Canadian marijuana producer released its quarterly report on May 14, beating estimates for first-quarter revenue, while meeting Wall Street's expectations for losses. Revenue increased 195% to $23 million and the company lost an adjusted $0.27 per share.
Hundley has a few updates for Tilray as well:
Our EBITDA estimates for FY19 and FY20 are relatively unchanged; we now anticipate FY19 EBITDA of ($34.4MM) and FY20 EBITDA of $20.3MM, mostly in-line with previous expectations. For FY21, we are dropping revenue expectations to $670.1MM from a previous view of $751MM, based on updated views around production, sale and pricing. Our new model does include new production and processing capacity as part of the company's recently disclosed capital investment plan. Despite a drop in revenue expectations for the year, we now forecast FY21 EBITDA of $140.6MM relative to our previous view of $134.2MM. We now expect better performance on the gross margin line, somewhat offset by the anticipation of a more robust SG&A profile.
The analyst reiterates a Neutral rating on TLRY, without suggesting a price target.
Ultimately, the word on the Street points to a sidelined majority on TLRY stock. In the last three months, the pot stock has landed 3 ‘buy’ ratings vs. 5 ‘hold’ and 3 'sell' ratings. It’s clear that Wall Street is largely divided between the bulls and the bears when it comes to Tilray's market opportunity. That said, the consensus average price target points to $88.20, or over 100$ upside potential for the stock. This suggests that by consensus expectations, for now, the bulls win big time. (Read more on TLRY)
Last, but not the least, is The Green Organic Dutchman. Hundley reiterates a Buy rating on TGODF stock, but lower his price target to $9.00 (from $10.00). Why? Let's take a look:
We bring down revenue expectations for FY19, FY20 and FY21, due to updated assumptions around production, sale and pricing. Our EBITDA forecasts across all three years come down as well, as a result. For FY21, we now expect EBITDA of $143.3MM relative to previous expectations of $159.5MM. Given our updated view of forward financials, our price target on the shares drops to $9 from $10. We maintain our Buy rating on the stock, based on an expectation that the company will be able to both scale production and sell organic product into the marketplace. We continue to be encouraged by added distribution agreements in recent weeks.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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