As Cronos Group (Cronos Group Stock Quote, Chart TSX:CRON) hits all time highs, GMP Securities analyst Martin Landry says he is heading for the sidelines.
On Monday, Cronos hit an intraday-high of $32.95 as volume spiked. Landry says this means the company has outstripped his target price.
“The company’s shares have surged ~110% year-to-date on no material news and have outperformed the HMMJ cannabis index by a factor of 2. This strong performance forces us to change our rating to HOLD solely based on valuation,” he said in a research update to clients today.
The analyst explains that he has not soured on the story, just the potential risk/return currently on Cronos. He today maintained his one-year price target of $24.00 on the stock, implying a return of negative 21.5 per cent at the time of publication.
“We are believers in Cronos’ bright outlook,” Landry says. “In early January, we added Cronos to GMP’s best idea list for 2019. CRON’s management team is best in-class with a strong track record of efficient capital deployment. We believe that the upcoming Altria investment will be a game changer. Cronos is hosting a shareholder vote on February 21st to approve the investment. Hence, Cronos’ re-rating observed in January was fully warranted in our view.”
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Landry thinks CRON will generate EBITDA of negative $7.4-million on revenue of $18.9-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $28.1-million on a topline of $93.9-million the following year.
Landry adds that he has no concerns about the company, operationally.
“Our downgrade is not based on any operational issues as we have no concerns on the expansion plans and execution abilities of CRON’s management team,” he says. “While the company does not have significant near-term production to supply the Canadian recreational market, we believe investors are cognizant of this as it appears adequately reflected in consensus estimates.”