Canntrust Holdings’ share price is “nonsensical”, Echelon says

Analysts from Echelon Wealth Partners Friday released their top picks for the second quarter of 2018, and analyst Russell Stanley has his eyes on marijuana stock, in particular. Stanley says CannTrust Holdings (CannTrust Holdings Stock Quote, Chart TSX:TRST) offers a prodigious 175 upside from current levels. The analyst today reiterated his $18.50 one-year target and “Speculative Buy” rating on the stock.

Stanley says the current share price of TRST is “nonsensical” considering its recent operational outperformance.

“Few cannabis companies accomplished so much during Q118, yet TRST fell 14% during Q118 vs. the adjusted average loss of 7% for our tracking group and the loss on the Horizons Marijuana Life Sciences ETF of 10%. Broken down by month, TRST fell 7% during January (vs. the ETF’s loss of 5%), 17% in February (vs. the ETF’s loss of 11%), before actually climbing 1% in March (vs. the ETF’s loss of 3%),” the analyst notes. “We attribute some of the more recent selling pressure to the March 31st expiry of the hold period on the November 2017 bought deal private placement ($20M at $5.00/shr). The stock’s underperformance makes little sense considering that, during Q118, TRST obtained the sales license for its Niagara greenhouse facility, completed its graduation from the CSE to the TSX, expanded its sales potential to the EU through a joint venture in Denmark, and closed on $15M in mortgage financing to support its Phase 2 expansion program.

Stanley thinks CannTrust will generate Adjusted EBITDA of $33.6-million on revenue of $11.8-million in fiscal 2018. He expects those numbers will improve to EBITDA of $110.9-million on a topline of $285.6-million the following year.

The analyst today addressed the fact that he is much more bullish on the stock than the street is.

“While our estimates are high vs. consensus , we note that the consensus estimate has almost doubled over the past three months,” Stanley says. “Our sales volume forecast assumes that the greenhouse facility operates at just 70% of nameplate annualized capacity of 40,000kg in for F2019. Should the facility produce at full nameplate capacity, our EBITDA estimate would improve to $153M, in which case the stock is now trading at 4.2x EV/2019E EBITDA. Moreover, we believe that potential outperformance on yields could take annualized capacity of this facility to as high as 60,000kg. Full capacity production at that level would take EBITDA to $224M, in which case the stock is trading at closer to 2.9x EV/2019E EBITDA.”