Curaleaf Holdings stock has huge upside, GMP Securities says

Share price weakness plus a number of upcoming catalysts make cannabis company Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart: CSE:CURA) a buy, says analyst Robert Fagan of GMP Securities, who expects strong top line results from CURA over the second half of 2018.

Ahead of its third quarter financials due on November 26, Fagan says vertically integrated cannabis company Curaleaf is undergoing rapid expansion in Florida, where its store count has gone from seven by Q2/2018 to the current 17 stores, already reaching the analyst’s end-of-2018 forecast of 17 locations.

The company is also well-positioned in Massachusetts’ newly opened recreational cannabis sector, says Fagan, with an expected three stores to be opened and revenues to begin in 2019. Legalization in New Jersey (with a vote expected on November 26), should also be a strong catalyst for CURA, he says, as the company plans to expand its production footprint in NJ by a factor of seven should the rec market open.

“We believe CURA has emerged as the new industry leader amongst public US cannabis operators, with a multi-state retail footprint and production base which is ~2x the size of its peer group average,” says Fagan in an equity research update on Wednesday. “Equally impressive is CURA’s wider breadth of operations which pro-forma recent acquisitions includes 14 facilities currently in operation across 10 states. This is more than triple the number of facilities CURA’s peers are currently operating on average, and across double the number of states. We believe CURA’s industry-leading operating platform argues for the highest valuation metrics in the sector.”

Fagan says the New Jersey decision could trigger New York State lawmakers to accelerate their legalization efforts, as well, while in Connecticut, Governor-elect Ned Lamont has intentions to legalize cannabis next year, another potential bonus for Curaleaf which is already well-established as one of five licensed producers and wholesalers in the state, says Fagan.

“CURA is currently trading at 8x 2020 EV/EBITDA (~10 per cent discount to peers) which we believe is not justified given the company’s industry-leading retail and production footprint (~2x larger than its peer group avg.) argues for a premium valuation,” says Fagan. “With no change to the fundamental outlook, and a series of forthcoming catalysts to surface value, we reiterate our positive stance on CURA.”

The analyst maintains his forecast for CURA, calling for fiscal 2018 revenue and EBITDA of $79.9 million and negative $20.5 million, respectively, fiscal 2019 revenue and EBITDA of $307.8 million and $118.1 million, respectively, and fiscal 2020 revenue and EBITDA of $600.2 million and $296.9 million, respectively. (All figures in US dollars unless indicated otherwise.)

Fagan reiterates his “Buy” recommendation and C$20.00 target price, representing a projected 12-month return of 205.3 per cent.