Ahead of the company’s quarterly results due next week, Stifel GMP analyst Robert Fagan is expecting revenue growth to come in near the bottom end of guidance for Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA).
In a client update Wednesday, Fagan maintained his “Buy” rating but trimmed his target on CURA, saying the company should have strong organic growth in 2021.
Wakefield, Mass-based cannabis company Curaleaf, which currently operates in 17 US states and has 53 dispensaries, 15 cultivation sites, 24 processing sites and operates its two brands Curaleaf and Select, is expected to announced its fourth quarter and full fiscal 2019 results on March 24 after market close.
Fagan said CURA has guided for between 20 and 30 per cent sequential revenue growth but is likely to register at the lower end, mainly due to a slower ramp-up in production in Florida and weaker markets in California and New York.
The analyst dropped his revenue estimate by five per cent to $75 million (which would represent a 21 per cent quarter-on-quarter uptick) and his EBITDA estimate to $12.5 million (versus $18 million prior). (All figures in US dollars except where noted otherwise.)
Early last month, Curaleaf finally closed on the purchase of Cura Products and its Select line, first announced last May. Fagan is now a little more conservative on the 2020 forecasts for both Select and CURA’s soon-to-be-acquired Grassroots, with the thought that markets in a number of US states are to be softer than previously expected.
At the same time, Fagan said Curaleaf has a number of organic drivers for the following 2021 year, including: revenue synergies from the integration of Select, having the leading platform to capture growth in Massachusetts’ rec cannabis market and having a robust presence in Pennsylvania and Illinois with Grassroots.
The analyst’s updated forecast calls for fiscal 2020 revenue and EBITDA of $800 million and $235.8 million, respectively, and for fiscal 2021 revenue and EBITDA of $134.1-billion and $459.8 million, respectively.
Fagan said the upsizing and closing of a $300-million financing round in January should be seen as a confidence builder for the company and its investors.
“Amid the challenged capital environment, we view CURA’s execution of the industry’s largest debt financing to date of $300 million as reinforcing the capital access advantage afforded by the company’s leading platform, and the still strong appeal it carries for investors,” Fagan wrote.
“Pro-forma recent financings and pending M&A, we estimate CURA’s available liquidity is currently the highest amongst peers at ~$275 million (ex. CAPEX). In our view, this better positions CURA over most competitors to reinvest in platform expansion, or execute opportunistically on M&A, thus entrenching its largest-in-industry platform scale and ability to capture market share and growth. This we believe puts CURA in a class of its own, arguing for amongst the highest valuation metrics in the sector,” Fagan said.
The analyst revised his target price, dropping it from C$24.00 to C$22.00, which at press time represented a projected return of 383.5 per cent.