Canopy Growth Corp. is still undervalued, says M Partners

Following the finalization of its acquisition of Mettrum Health, M Partners analyst Mason Brown thinks there is still a lot of upside in Canopy Growth Corp. (Canopy Growth Stock Quote, Chart, News: TSX:CGC)

On January 27, Canopy announced that it had, subject to court approval, finalized the acquisition of Mettrum Health Corp.

“We are delighted that the shareholders of Canopy and Mettrum have demonstrated such strong support for bringing our two companies together,” said Canopy CEO Bruce Linton. “Our focus remains on expanding production capabilities in order to capture market share through a variety of brands. Mettrum’s strong growing platform and brand furthers this strategy.”

Brown says the acquisition closes the chapter on one part of Canopy’s history and opens another.

“The acquisition furthers CGC’s names as the go-to LP for strategic transactions, a valuable position going into a year that we expect will feature an abundance of strategic transactions,” says Brown. “Looking back, 2016 was the year of financings and expansion plans. Looking forward to 2017, we expect this to be the year of partnerships, acquisitions and investments as LPs acquire applicants, engage with value-add product producers, and position for the rec market. As the largest LP with a well-capitalized balance sheet and valuable stock, we believe CGC is seated in a valuable position: not only will companies (ACMPR applicants, value-add manufacturers) want to partner with or be acquired by CGC, these same companies may provide CGC more favourable terms to strengthen the chances of a transaction being consummated.”

In a research update to clients today, Brown maintained his “Buy” rating and one-year price target of $14.40 on Canopy Growth Corp, implying a return of 45 per cent at the time of publication.

Brown believes Canopy will post EBITDA of negative $3.0-million on revenue of $47.4-million in fiscal 2017. He expects these numbers will improve to positive EBITDA of $12.8-million on a topline of $141.8-million the following year.