After the company’s second quarter results, PI Financial analyst Jason Zandberg is staying steady with his call on US hemp-based CBD products company Charlotte’s Web Holdings (Charlotte’s Web Holdings Stock Quote, Chart, News TSX:CWEB).
In an earnings update on Wednesday, Zandberg reiterated his “Buy” rating and C$30.00 target price. It represented a projected 12-month return of 16.6 per cent at the time of publication.
Boulder, Colorado’s Charlotte’s Web saw its share price drop on the release of its Q2 on Wednesday, where it posted revenue of $25.0 million, a 45-per-cent year-over-year growth rate and adjusted EBITDA of $3.9 million, down 49 per cent year-over-year. EPS was $0.02 per share versus $0.05 per cent a year ago. (All figures in US dollars unless where noted otherwise.)
Along with the quarterly results, the company announced a number of management changes, including at CFO where Russ Hammer, previously CFO of Brown Shoe Company, has taken up the position. The company has a growing product portfolio with now five leading national retailers including CVS and Kroger selling CWEB products.
“We have been experiencing increased sales through both our e-commerce and retail sales channels,” said CEO Deanie Elsner in the quarterly press release. “To effectively service projected growth, we have been building our executive leadership with experienced consumer-packaged goods (CPG) executives in sales, marketing, finance, data and operations. Similarly, we are expanding our capabilities in cultivation, R&D, production and distribution.”
Zandberg says that the quarterly numbers came in below his expectations. He called for revenue of $29.3 million, EBITDA of $8.2 million and EPS of $0.04 per share. The analyst notes that CWEB’s distribution channels are expanding rapidly, with its store count growing to plus-6,000 by the end of the quarter. He adds that he anticipates its bricks and mortar locations will continue to scale in 2019 as Kroger rolls out into 1,350 of its stores and the company’s pet products move into more stores.
Hemp supply will not be an issue…
Zandberg says that hemp supply will not be an issue for CWEB in the foreseeable future, as the company planted 862 acres in 2019, a 187 per cent increase from the 300 acres planted in 2018.
Looking forward, the analyst sees CWEB’s progress to be dependent on the US Food and Drug Administration’s call on hemp-derived CBD for human consumption, which is still prohibited federally. He says there is significant upside to his forecasts if it happens that the FDA provides CBD guidance before the end of this year.
“Management maintains revenue guidance of between $120 million and $170 million and EBITDA guidance of between 30 and 35 per cent for fiscal 2019. The range is dependent on the FDA providing positive regulations for hemp-derived CBD in 2019. While we believe that the FDA will eventually do this, our expectation is that it will not happen this year,” Zandberg writes.
CWEB revenue projections
As a result, Zandberg is forecasting fiscal 2019 revenue of $125 million and EBITDA of $28.6 million. H expects the the majority of that top line growth coming from the pet products and topical product category. For fiscal 2020, he is calling for revenue of $231.2 million and EBITDA of $75.5 million.
With the quarterly report, Charlotte’s Web announced the signing of two distribution partners for its pet line. Pacific Pet in California, one of the largest distributors of pet food and pet products on the West coast, and Pet Food Experts, which services over 4,000 retailers in 33 states.