Beacon Securities analyst Russell Stanley is still high on the stock but an earnings miss contributed to a lowering of his target on Curaleaf Holdings (Curaleaf Stock Quote, Chart, News, Analysts, Financials CSE:CURA). Stanley maintained a “Buy” rating in an update to clients on Friday while reducing his target price from C$20/share to C$18/share for a potential return of 131 per cent.
Headquartered in Wakefield, Mass., Curaleaf Holdings is a vertically integrated cannabis operator in the United States with 109 dispensaries, 22 cultivation sites and 30 processing facilities across 23 states and covering an aggregate population of 192 million.
Stanley’s latest analysis comes after Curaleaf released its fourth quarter financial results along with 2021 year-end figures.
A big highlight from the quarter was the $80 million in adjusted EBITDA for a 25 per cent margin, which beat the Beacon Securities estimate of $72 million and a 23 per cent margin as well as the $77 million projection set out by the consensus. Stanley attributed the beat to overhead, with the earnings including $10 million in add-backs for acquisition-related expenses as well as legal, professional and accounting fees. (All figures in US dollars except where noted otherwise.)
“The company has done well to restore gross and adjusted EBITDA margins to prior levels following a soft Q3,” Stanley said. “Management added that the Q4 adjusted EBITDA margin of 25 per cent was negatively impacted by the European operations, which are still ramping up and acted as a 100 bps drag on margins.”
Meanwhile, the company’s revenue came in at $320 million, which was in line with the $321 million estimate set out by Beacon Securities and the $323 million consensus estimate, while also representing one per cent sequential growth and a 39 per cent year-over-year increase.
In terms of 2022 guidance, CuraLeaf indicated a revenue range between $1.4 billion and $1.5 billion to imply year-over-year growth of 20 per cent, while also assuming the company’s acquisition of Tryke will be closed by October 1. That guidance, Stanley noted, came in under the consensus expectation of $1.574 billion.
The modelling also assumes the New Jersey adult-use market will be open by May 1, with Stanley believing that CuraLeaf’s location in the Philadelphia suburb of Bellmawr will do well once the New Jersey market opens.
Stanley also pointed to Florida as a market where CuraLeaf has further planted its roots, growing to become the third-largest retail footprint with 44 dispensaries, and moving to second in market share with sales of flower moving to 16 per cent and oil-based sales growing to 15 per cent, based on last week’s volumes.
“In 2021, we made significant progress strengthening all areas of our business including growing our retail and wholesale distribution, introducing new products, expanding our cultivation and production capacity, and entering new markets such as Europe,” said Joe Bayern, Chief Executive Officer of CuraLeaf in the company’s March 3 press release.
“I believe our focus and strong execution in 2021 set us up extraordinarily well for the significant growth opportunities that lie ahead in 2022 and beyond. I am incredibly proud of the hard work and dedication of all our team members who have made our continued success possible. I believe Curaleaf is better positioned than ever to capitalize on the massive and growing cannabis opportunity,” Bayern said.
CuraLeaf crossed the ten-figure revenue threshold in 2021, ending the year with $1.21 billion. Looking ahead, Stanley has revised some of his financial projections. Stanley forecasts revenue to jump to $1.5 billion (previously $1.59 billion) in 2022 to imply a year-over-year increase of 23.6 per cent, followed by a jump in 2023 to $2.16 billion (previously $2.33 billion), suggesting a year-over-year increase of 44.4 per cent.
From a valuation standpoint, Stanley forecasts the EV/Revenue multiple to drop from 4.2x in 2021 to a projected 3.4x in 2022, then dipping to a projected 2.3x in 2023.
Meanwhile, after ending 2021 with $298 million and a 25 per cent margin, Stanley believes the company’s adjusted EBITDA margin will get wider, jumping to $398 million and a 27 per cent margin in 2022, then expanding again to $712 million and a 33 per cent margin in 2023.
Accordingly, Stanley forecasts the company’s EV/EBITDA multiple to drop from 17x in 2021 to 12.7x in 2022, then to a projected 7.1x in 2023.
After reporting a loss in 2020, CuraLeaf’s operating cash flow turned positive in 2021 at $55 million for a five per cent margin. Looking ahead, Stanley forecasts CuraLeaf’s OCF margin widening to 13 per cent ($190 million) in 2022, then again to a projected 19 per cent margin ($411 million) in 2023.
Stanley said Curaleaf, due to its size and market reach, will be one of the first beneficiaries once investor sentiment returns to the cannabis space.
“CURA now trades at 7.1x our F2023 adjusted EBITDA forecast. This represents a 7 per cent premium to the 6.6x average at which CSE-listed US operators trade (see page 2, bottom right). Potential company-specific catalysts include the Q1 results in May, M&A activity and buildout updates, and the closing of the Tryke acquisition (likely H2/22),” Stanley wrote.
CuraLeaf’s stock price has dropped by 60 per cent over the last 12 months, and a 30.6 per cent loss since the start of 2022 alone. CuraLeaf was sitting at a 52-week high of C$20.70/share on March 9, but it has dropped off to its present 52-week low of C$7.56/share.
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