Curaleaf Holdings is in “beast mode”, Beacon Securities says

Following its latest acquisition, Beacon Securities analyst Russell Stanley has raised his price target on Curaleaf Holdings (Curaleaf Holdings News, Stock Quote, Chart CSE:CURA).

This morning, Curaleaf Holdings announced it would acquire GR Companies Inc. (Grassroots), which it described as “the largest private vertically integrated multistate operator”, for approximately $875-million.

“With the acquisition of Grassroots and the pending acquisition of Select, Curaleaf is the world’s largest cannabis company by both revenue and operating presence,” CEO Joseph Lusardi said. “With a combined 68 open dispensaries, this transaction significantly accelerates our expansion strategy and strengthens our reach across the medical and adult-use markets. In addition, it enhances the depth of our retail and wholesale platform across the country. By leveraging our scale as well as our market-leading capabilities and expertise, we will continue to deliver value for our shareholders.”

Stanley says this is a clear win for CURA, which he says is in “Beast Mode”.

“This transaction offers a number of benefits: entry into seven new states (including the highly coveted Illinois, Pennsylvania and Michigan markets), a significant expansion of CURA’s industry-retail footprint (to 68 operating dispensaries, licenses for 63 more), expansion of the company’s wholesale capability with additional cultivation/manufacturing assets, and human capital, particularly expertise with respect to de novo licensing applications that can fuel organic growth,” the analyst says. “We have updated our model to include Grassroots, under the assumption that the transaction closes at the end of Q1/20 (management has predicted an early 2020 close), and have increased our F2021 revenue/attributable EBITDA estimates from $1.6B and $685M, respectively.”

In a research update to clients today, Stanley maintained his “Buy” rating but raised his one-year price target on Curaleaf Holdings from $23.00 to $25.00, implying a return of 146 per cent at the time of publication.

Stanley thinks CURA will post Attrib EBITDA of $45-million on Managed Revenue of $299-million in fiscal 2019. He expects those numbers will improve to EBITDA of $380-million on a topline of $1.12-billion the following year.

“CURA is now trading at approximately 6x our revised F2021E EBITDA estimate. This represents a 43% discount to the 11x average at which the broad peer group trades, and a 53% discount to the 13x average at which companies with a C$1B+ market capitalization trade,” the analyst adds.

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