Beacon Securities analyst Russell Stanley is keeping the faith with US cannabis name Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA) after the company’s fourth quarter earnings were released earlier this week.
In an update to clients on Wednesday, Stanley reiterated his “Buy” rating and C$22.00 target price on CURA, saying that so far the company’s operations haven’t been disrupted by COVID-19.
Wakefield, Massachusetts-based Curaleaf is one of the largest US multi-state operators with 54 dispensaries, 15 cultivation sites and 24 processing sites and operations in 17 states. The company released its fourth quarter and year end financials on Tuesday, showing record numbers for the year in managed revenue at $221.0 million, up 187 per cent compared to 2018, and adjusted EBITDA at $25.9 million compared to a loss of $10.4 million in 2018. (All figures in US dollars except where noted otherwise.)
In the press release, executive chairman Boris Jordan commented on the COVID-19 situation, saying that Curaleaf’s top priorities are to ensure continued service to its patients and customer while minimizing exposure for them and CURA’s employees.
“We have implemented a range of new procedures and policies at our dispensaries and have been working closely with regulators and government officials to secure an essential services designations in the vast majority of our markets,” said Jordan.
“These actions allow for continued access to our products for patients and customers who depend on them for their health and wellness needs. Despite this unprecedented and challenging situation we are all facing, our fundamental business remains strong and we are seeing increased demand,” Jordan said.
For the Q4, Curaleaf’s results were mixed, with $75 million in revenue and $13.8 million in adjusted EBITDA, which compared to Stanley’s $80 million and $9.2 million respectively. The analyst called the earnings beat a highlight of the quarter, as investors are increasingly focused on margins and cash flow performance with cannabis companies, according to Stanley.
“Based on the results of the quarter and management’s comments during last night’s conference call, we have reduced our 2020 revenue/EBITDA forecast from $876 million/$256 million to $686 million/$148 million. These revisions were primarily driven by reduced estimates for Florida (reflecting supply constraints through mid-2020), Grassroots (noted above), Select, Massachusetts and Nevada,” Stanley wrote.
“While the extent of COVID-19’s negative impact on the US economy remains TBD, we note that cannabis demand has remained resilient to date, reflecting its importance to patients/consumers. We are therefore limiting our forecast changes to 2020 for now,” he said.
With respect to COVID-19, Stanley noted that governments in almost all jurisdictions in which Curaleaf operates have deemed cannabis operations an essential service —and thus immune, at this point, to closure requirements to stem outbreaks.
In the conference call, management had added that its day-to-day banking operations and cash pickups
have been uninterrupted during the crisis and that governments are being collaborative in making it easier for companies like CURA to hire more staff across its supply chain.
Stanley has estimated that CURA now trades at approximately 3.8x his fiscal 2021 EBITDA forecast, which represents a 33-per-cent discount to the 5.6x average for US cannabis operators and a 65-per-cent discount to the 10.8x average for its broader peer group.
His C$22.00 target represented at press time a projected 12-month return of 301 per cent.
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