Harvest Health gets bullish new $3.50 target at Beacon Securities

Following the company’s second quarter results, Beacon Securities analyst Russell Stanley has raised his price target on Harvest Health and Recreation (Harvest Health and Recreation Stock Quote, Chart, News CSE:HARV).

In a research update to clients Wednesday, Stanley maintained his “Buy” rating but raised his one-year price target on HARV from $3.00 to $3.50, implying a return of 89 per cent at the time of publication.

The analyst explained the reasoning behind the action.

“We are increasing our 12-month target price from C$3/sh to C$3.50/sh, following upward revisions to our revenue/EBITDA forecast,” he said. “Last night after the close, HARV reported revenue/adjusted EBITDA of $56M/$4M vs. consensus of $49M/($2M) and our estimates of $46M/($6M). The company has successfully driven strong margin improvement, allowing it to become EBITDA positive two quarters ahead of our forecast. We have increased our F2020 revenue/EBITDA forecast from $200M/($6M) to $218M/$11M, and our F2021 revenue/EBITDA forecast from $384M/$77M to $389M/$88M to reflect the elevated F2020 revenue guidance as well as continued SG&A improvement. The company continues to focus its growth efforts on four key markets: Arizona, Pennsylvania, Florida, and Maryland. After lagging its peers in terms of share price performance, HARV was the strongest performer in our tracking group last week (up 22%). As shown on page 6, the technical picture has improved significantly, and we believe the stock has strong upside potential on both a fundamental and technical basis.”

Stanley thinks Harvest Health will post Attrib. EBITDA of $9.0-million on revenue of $218-million in fiscal 2020. He expects those numbers will improve to EBITDA of $88-million on a topline of $389-million the following year.

The analyst argued that HARV is cheap compared to its peers.

“HARV trades at approximately 9.5x our increased F2021 EBITDA forecast. This represents a 20% discount to the 11.9x average amongst US operators, and a 27% discount to the 13.0x average for the broad peer group. Potential catalysts include further progress towards
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