Cronos Group has turned a corner, GMP says

Following a third quarter that bested his expectations on the topline, GMP Securities analyst Martin Landry is feeling optimistic about Cronos Group (Cronos Group Stock Quote, Chart, News: TSXV:MJN).

On Wednesday, Cronos Group reported its Q3, 2017 results. The company generated Adjusted EBITDA of negative $500,000 on revenue of $1.3-million,a topline that was up 962 per cent over the same period last year.

“We have successfully transformed the company over the past year and a half. We are now focused on executing our strategy to generate accelerated revenue growth and create long-term shareholder value,” said CEO Mike Gorenstein.

In a research update to clients today, Landry maintained his “Buy” rating on Cronos Group, but raised his one-year price target on the stock from $4.00 to $4.50, implying a return of 11.9 per cent at the time of publication. The analyst explained his more bullish take.

“After some past challenges, MJN appears to have turned a corner in Q3, providing us increased confidence in the outlook,” the analyst says. Our positive stance is based on: 1) a strong management team establishing key partnerships and deploying capital effectively, 2) capacity expansion of 45,000kg elevating MJN’s production profile to amongst industry leaders, and 3) a strong platform for international growth with Cronos Israel. Our target is based on a DCF using: 1) a discount rate of 10% (11% previous), (2) avg. market share of 4% and avg. EBITDA margin of 32% (31% previous, and (3) a terminal growth rate of 3%.”

Landry thinks Cronos Group will generate EBITDA of negative $3.2-million on revenue of $4.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $15.2-million on a topline of $58.3-million the following year.