Cresco Labs is still undervalued, PI Financial says

With a number of acquisitions progressing towards completion, PI Financial analyst Jason Zandberg says Cresco Labs (Cresco Labs News, Stock Quote, Chart CSE:CL) is still undervalued.

In a research update to clients today, Zandberg maintained his “Buy” rating and one-year price target of $23.00 on Cresco Labs, implying a return of 115 per cent at the time of publication.

“Several large cannabis acquisitions have taken longer than expected to close but we see no cause for concern,” the analyst says. “We do not see the US HSR Act to be an impediment for closings as, two large cannabis acquisitions have successfully closed after filing for approval and there are currently no transactions involving two large market share leaders under review.”

Zandberg says Cresco’s acquisition of Origin House, first announced in April, will close on or before October. He expects the acquisition of VidaCann, announced in March, will close mod-Q3. And he thinks the pickup of Valley Agriculturals will happen by the end of fiscal 2019.

The analyst notes strong growth in Illinois, Pennsylvania and California and an improved outlook in Ohio and Massachusetts.

“Cresco continues to dominate in Illinois and Pennsylvania,” he says. “With the adult-use market in Illinois commencing in 2020, Cresco is in a strong position for growth within this state. We believe the California market will post strong sales for the remainder of FY19,” Zandberg says. “Ohio medical cannabis program kicked off in January 2019 but progress has been slow to date as only 22 dispensaries are currently operational. Licensing in Massachusetts has progressed but Cresco is still awaiting its adult-use license which we now expect in Q4 FY19.”

Zandberg thinks Cresco will post EBITDA of $12,7-million on revenue of $200.0-million in fiscal 2019. He expects those numbers will improve to EBITDA of $172.6-million on a topline of $682.2-million the following year (All Figures USD).

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