US cannabis name Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart, News CSE:CURA) has done well to dig itself out of the hole it was in earlier this year but there should be plenty more where that came from, says Stifel GMP’s Robert Fagan.
The analyst reviewed CURA’s latest quarterly results in an update to clients on Tuesday, saying Curaleaf’s solid execution will see the company through the temporary headwinds of COVID-19.
Wakefield, Massachusetts-headquartered Curaleaf, a US multi-state operator in currently 17 states with 57 dispensaries, 15 cultivation sites and 24 processing sites, on Monday reported its first quarter 2020 financials for the period ended March 31.
The numbers showed sales of $96.5 million, up 28 per cent from the previous quarter and up 174 per
cent from a year earlier, and adjusted EBITDA of $20 million, up from $13.8 million in Q4 2019 and up from a $2.8-million loss a year earlier. (All figures in US dollars except where noted otherwise.)
Highlights of the quarter included the completion of the Select acquisition and the obtaining of retail and processing licenses in Utah and rights to cultivate, process and sell medical marijuana in Pennsylvania.
“Curaleaf remains well positioned for improving top and bottom-line performance in 2020 driven by our organic growth initiatives as well as strategic acquisitions. We expect the pending completion of our purchase of Grassroots, the largest private vertically integrated multi-state cannabis operator, to affirm our position as the world’s largest cannabis company by both revenue and operating presence,” said Joseph Lusardi, CEO, in a press release.
The Q1 numbers were solid, according to Fagan, with the $96.5-million top line coming in-line with the consensus of $98 million but below his $108-million estimate. On adjusted EBITDA, CURA’s $20-million earnings was a beat of both Fagan’s $14.5-million forecast and the Street’s $16.5 million.
The analyst said that where he was forecasting declining gross margin for the quarter due to the integration of Select’s lower margin business, CURA actually drove up its margin by 130 basis points sequentially to 56.7 per cent, its highest in over a year and a sign of growing scale efficiencies from Curaleaf’s diverse and relatively mature production platforms.
Fagan noted management’s lowered guidance for the Q2 at $120 million in revenue compared to the previously offered $128 million. The likely culprits will be a COVID-related store closure in Massachusetts along with Nevada turning to delivery-only sales.
“For three quarters now, CURA has proven its ability to expand sales alongside profitability, underpinning solid execution. In addition, CURA’s strong track record of M&A (no cancelled deals) reassures us Grassroots will close, and perhaps sooner than some feared (now targeted end of Q2/20). With CURA’s market-leading platforms across a broad portfolio of high-growth states, ample cash of $176 million and strong propensity for M&A, we see a path to accelerating future growth,” Fagan wrote.
With the update, the analyst maintained his “Buy” rating on CURA and C$22.00 target price, which at press time represented a projected return of 164.4 per cent.