Industrial Alliance slashes price target on MedMen

Following the company’s first quarter results, Industrial Alliance Securities analyst Nav Malik has chopped his price target on MedMen Enterprises (MedMen Enterprises Stock Quote, Chart, News CSE:MMEN)

On Wednesday, MedMen reported its Q1, 2020 results. The company lost $82.63-million on revenue of $44.0-million, a topline that was up 105 per cent over the same period last year.

“We entered Fiscal 2020 on a mission to build a more nimble and financially flexible Medmen,” CEO Adam Bierman said. “As we right-size our organization and implement an intensified focus on free cash flow generation, our business will become more efficient, in turn allowing us to better serve our stakeholders. Through the successful execution of these goals, we expect Medmen will be EBITDA positive by the end of calendar year 2020.”

Malik notes that while revenue growth decelerated for MMEN, its margins improved as a results of a focus on reducing SG&A.

But overall, the analyst says he is reducing his estimates to accurately reflect a slower pace of growth than he was previously expecting.

“MedMen has 33 locations in operation and expects to add 13 more stores by the end of 2020. MedMen provided guidance for annualized revenue to reach $300M by the end of C2020, which is below our prior forecast of approximately $400M of annualized revenue by that time. As such, we have reduced our estimates accordingly.

In a research report to clients today, Malik maintained his “Hold” rating but cut his one-year price target from $1.65 to $0.85, implying a return of 49.1 per cent at the time of publication.

Malik thinks MMEN will post EBITDA of negative $86-million on revenue of $229-million in fiscal 2020. He expects those numbers will improve to EBITDA of positive $20-million on a topline of $338-million the following year.

The quarterly results from MedMen fell in the wake of a shakeup that says the company lay off 190 employees in a move management said was to bring the company to positive EBITDA before the end of 2020.

“We have a clear plan to increase our market share, while at the same time enhancing our margins and reducing our corporate overhead,” Bierman said of the move. “We must unlock our operating leverage and bring the company to positive EBITDA. Given market conditions, capital allocation is more critical than ever. As such, we announced a layoff of over 190 Medmen employees. This layoff includes many hard-working, mission-based people, whose presence will be sorely missed. While it is never easy to let employees go from the Medmen family, we believe this decision is in the best interest of our company as we position ourselves for growth in the years ahead. We thank everyone for their hard work and dedication to Medmen, and we will now set our sights on achieving positive EBITDA by the end of calendar year 2020.”