Cannabis company Cronos Group (Cronos Group Stock Quote, Chart: TSX, NASDAQ:CRON) released quarterly financials that came in lower than expected on both the top and bottom lines, says Jason Zandberg of PI Financial, who on Tuesday trimmed his forecasts while keeping his “Buy” rating and $15.00 target price.
Cronos reported Q3 results for the period ended September 30, 2018, generating revenue of $3.8 million a 186 per cent year-over-year increase and a 12 per cent quarter-over-quarter increase. The company’s EBITDA was negative $4.2 million compared to positive $0.2 million last year.
“We are encouraged with our third quarter results, which reflect the meaningful progress we are making on our strategic initiatives. In the quarter, we announced a number of landmark partnerships to expand our reach beyond the flower and beyond Canada and launched our second differentiated recreational cannabis brand,” said Mike Gorenstein, CEO of Cronos Group, in a press release.
“The recent legalization of cannabis sales for adult recreational use in Canada was a watershed moment for our industry and our Company. We are energized by the opportunities this creates for Cronos Group in Canada and look forward to leading the industry forward responsibly,” he said.
Zandberg notes that Cronos’ capacity expansion continued over the quarter, with the company making progress on its 286,000 sq. ft. facility, Building 4, where the first harvest is expected by the end of 2018 (anticipated to reach 33,500 kg annually).
“We believe that Cronos Group represents one of the best cannabis companies based not only on its superior innovation but also its strong sales potential in Canada and in International medical markets. Our target represents an EV/EBITDA of 50x based on our FY20 estimates (previously 48x),” says Zandberg.
The analyst has slightly altered his forecasts, now calling for revenue of $26.4 million, $85.0 million and $175.0 million in fiscal 2018, 2019 and 2020 (previously $27.7 million, $85.4 million and $175.2 million). His EBITDA forecast is now negative $0.7 million, $22.5 million and $52.9 million for fiscal 2018, 2019 and 2020 (was $2.0 million, $22.8 million and $53.2 million).
Zandberg’s $15.00 target represented a projected return of 39 per cent at the time of publication.