A proven track record of profitability and strong branding make Cresco Labs (Cresco Labs Stock Quote, Chart CSE:CL) a “Buy” for analyst Robert Fagan of GMP Securities, who in a client update on Thursday gave the thumbs up to the US cannabis company’s latest quarterly numbers.
Chicago-based Cresco announced its first quarter 2019 earnings on Wednesday, which included sales of $21.1 million and an Adj. EBITDA loss of $0.5 million. Fagan says that both were in line with his estimates at $21.5 million and $1.2 million, respectively. (All figures in US dollars unless noted otherwise.)
The analyst says Cresco is ready to hit the ground running in Florida and Massachusetts, where the company is awaiting the closing of acquisitions VidaCann in Florida and HHH in Mass, both of which are currently in operation and thus should be adding to Cresco’s totals by the third quarter of 2019, says Fagan.
“While Q1/19 proforma revenues were slightly below peer averages, CL’s acquisitions (all set to close within ~30– 90 days) are growing rapidly, particularly with Origin House on track to double its sales in Q2. Combined with the expected scale up of recently added operations in California and Arizona, we see CL poised for robust growth in H2/19,” says Fagan.
The analyst also notes the recent passing of a rec cannabis bill by the Illinois Senate, leaving it to the House to pass the legislation (a potential floor vote could occur as early as Friday, Fagan says), which would be good news for Cresco, as its currently operates 140,000 of production and five stores in the state.
Moving on to Michigan, Fagan says that there’s potential upside to his Cresco forecasts due to a recent regulatory change which gives sellers the right to buy their product from caregivers (i.e., not their own cultivation) and hence could accelerate Cresco’s time to market by three or four months once its cultivation and processing license in the state is granted.
“We have tweaked slightly our previous expectations for closings of CL’s various acquisitions, which results in minor downwards adjustments to our 2019 forecasts. More specifically, we now expect CL’s New York and Massachusetts acquisitions to close in Q3 versus Q2/19 previously, which is partially offset by anticipation of a larger store network for VidaCann in Florida following management’s Q1/19 commentary,” says Fagan.
The analyst is now calling for fiscal 2019 revenue of $243.7 million and EBITDA of $43.5 million.
Fagan is reiterating his “Buy” rating and C$21.50 target price, which represents a projected 12-month return of 34.3 per cent at the time of publication.