Curaleaf Holdings has an upside of 228 per cent, GMP says

Looking at solid third quarter numbers from Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA), analyst Robert Fagan of GMP Securities thinks the US cannabis company has turned a corner when it comes to profitable expansion.

Fagan provided an update to clients on Wednesday where he reiterated his “Buy” rating and C$24.00 price target for CURA, which at press time represented a projected 12 month return of 228.8 per cent.

Massachusetts-based Curaleaf, which has operations in 12 states including 50 dispensaries, 14 cultivation sites and 13 processing sites, released its Q3 on Tuesday, showing revenue of $61.8 million, up 189 per cent year-over-year and up 27 per cent over the previous quarter. (All figures in US dollars unless where noted otherwise.)

“Our increasing scale along with the incredible efforts of our team around the country who ensure our patients and customers have a superior experience, helped drive the strong financial results we posted this quarter,” said CEO Joseph Lusardi, in a press release.

Fagan said that the $62-million top line was below his $67 million estimate but in line with the consensus forecast of $63 million. Q3 EBITDA of $9 million, a huge 169-per-cent improvement over the previous quarter, was in line with Fagan’s $9.5-million estimate and better than the Street’s $8 million forecast.

The analyst said that CURA had good cost control over the quarter, with SG&A levels up just 18 per cent sequentially versus a 75-per-cent uptick in sales.

“With Q3 the 2nd consecutive quarter of positive EBITDA for CURA and at the highest margins on record (14.6 per cent), this reinforces our view that the company has turned the corner on profitable expansion, with more benefits from higher operating leverage to come,” Fagan wrote.

The analyst noted that management expects revenues to grow by 20 to 30 per cent going into the fourth quarter, effectively guiding for a Q4 top line of between $88 and $95 million. That guidance was below the prior consensus of about $100 million, but Fagan says that the Q4 softness is likely temporary as Curaleaf is facing both delays in opening its recreational cannabis store in Massachusetts and a current vape products ban in that state.

“Overall, we are encouraged by CURA’s solid Q3 results demonstrating the company is executing well on growing profitably. Q4 aside, CURA’s growth outlook remains robust with the 2020 guidance intact. Target based on 27.5x 2020 EBITDA of $370 million plus $185 million of EBITDA we assume acquired,” Fagan writes.

The analyst thinks that CURA will generate full-year fiscal 2019 revenue and EBITDA of $226.1 million and $27.0 million, respectively, and fiscal 2020 revenue and EBITDA of $1,065.4 million and $392.1 million, respectively.

Fagan reports that CURA’s balance sheet is in a good position, having exited the third quarter with $91 million in cash and thus providing good liquidity for near-term requirements, including $25 million for the acquisition of Acres Cultivation and ongoing capes needs.

Curaleaf’s share price rose 15.8 per cent Wednesday.