Canopy Growth Corp. is undervalued, says M Partners

Canopy Growth Corp. (Canopy Growth Corp. Stock Quote, Chart, News: TSX:CGC) has separated itself from the pack as one of the early leaders in the Canadian medical marijuana space, but M Partners analyst Mason Brown thinks there is still upside in the stock.

In a research report to clients today, M Partners resumed coverage of Canopy with a “Buy” rating and a one-year price target of $5.80, implying a return of 52 per cent at the time of publication.

Brown believes the early leadership role Canopy has forged will soon translate to broad-based success.

“We view CGC as a structural winner in the Canadian marijuana market,” says the analyst. “Since reaching the market leader position, it has steadily held and gradually grown its control of the medical market through its brand reputation, extensive product offering, and patient outreach programs. Once the recreational market begins (we estimate a $7.1B med+rec market by YE2024), we believe CGC can extend its control to the rec market (10% market share by 2020) by leveraging its medical leadership status, expertise, and financial strength. CGC has already begun to assert itself on the global stage by executing on strategic international transactions via providing advisory services, acquiring equity ownership positions, and entering JVs. Targeting countries with nascent legal medical markets and that have a route to recreational access, CGC is looking to set itself up to be a significant player. Lead by strong management with extensive industry and transactional experience, Canopy is well positioned to become a leader in the Canadian market and a principal player in the international market as well.”

Brown thinks Canopy will generate Adjusted EBITDA of $600,000 on revenue of $39.4-million in fiscal 2017, numbers he expects will climb to EBITDA of $10.5-million on revenue of $67.3-million the following year.