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Cresco Labs is still very attractively priced, Beacon says

Cresco Labs

Following the company’s fourth quarter results, Beacon Securities analyst Russell Stanley is maintaining his “Buy” rating on Cresco Labs (Cresco Labs Stock Quote, Chart CSE:CL).

This morning, Cresco Labs reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted EBITDA of $13.7-million on revenue of $17-million, a topline that was up 411 per cent over the same period last year.

“We completed 2018 with another quarter of positive pretax income that reflected continued strong execution across all areas of our operations,” CEO Charles Bachtell said. “We continue to successfully enter new markets with beneficial regulatory structures, increase our production and processing capacity, and expand the distribution for our unique and sophisticated house of brands. Our ability to offer compelling products to all major segments of the cannabis market and achieve high levels of market penetration is generating strong growth in revenue and significant improvement in our gross margin. Building on our momentum from 2018, we have already made incredible progress this year in building Cresco Labs’ leadership position in the cannabis industry. The definitive agreement signed with Origin House earlier this month is a transformational deal for Cresco that creates a cannabis industry powerhouse with the premier distribution platform in the United States serving the greatest number of dispensaries in the country. Combined with our recent entrance into the Florida market, Cresco has built the largest and most strategic footprint of any cannabis company in the United States. We anticipate that 2019 will be a highly productive year in establishing Cresco as the first national brand in the cannabis industry, capitalizing on the strong growth we are seeing in large markets across the country, and creating additional value for our shareholders.”

Stanley says Cresco bested his expectations on both the top and bottom line. Despite this, he says the stock is still attractively priced.

“As of writing, the stock is up 11% on the back of these results, but we still see considerable upside,” the analyst says. “The proposed acquisition of Acreage Holdings by Canopy Growth Corporation has highlighted the massive valuation disconnect between companies focused on Canada (trading at an average of 42x 2020E EBITDA) and those operating in the United States (trading at 14x, an 67% discount to their Canadian cousins). CL is now trading at approximately 22x our 2020E EBITDA forecast. This is in line with the 22x average for the broad peer group, but a significant 42% discount to the 38x average for companies with a C$1B+ market capitalization. Potential catalysts include the upcoming release of Q1/19 results, which should feature meaningful growth in pro forma revenue, closing of the OH and VidaCann acquisitions, and additional M&A activity.”

In a research update to clients today, Stanley maintained his “Buy” rating and one-year price target of $24.00 on Cresco Labs, implying a return of 33 per cent at the time of publication.

The analyst thinks the company will post EBITDA (net NCI) of $62-million on revenue of $319-million in fiscal 2019. He expects those numbers will improve to EBITDA of $220-million on a topline of $771-million the following year.

About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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