GTII stock has a huge upside, says Beacon

The market has not been kind to pot stocks over the past two years, and that includes Green Thumb Industries (Green Thumb Industries Stock Quote, Charts, News, Analysts, Financials CSE:GTII), whose share price is down over 70 per cent since May 2021.

But investors should be looking ahead instead of behind when it comes to GTII, according to Beacon Securities analyst Russell Stanley, who continued with a “Buy” rating on the stock and C$28 target price in a Monday report to clients. Stanley sees a potential catalyst in this week’s earnings report from Green Thumb and is calling for top and bottom line growth for the company over 2023 and 2024.

Ahead of Wednesday’s first quarter results from Green Thumb, due after market close, Stanley has forecasted revenue and adjusted EBITDA of $247 million and $76 million, respectively, with analysts’ consensus estimates at $250 million and $74 million, respectively. The analyst is also calling for cash from operations of $56 million for a 23 per cent margin. (All figures in US dollars except where noted otherwise.)

Stanley said he’ll be listening for management commentary on pricing pressures in the US cannabis market which have impacted margins. He noted that in the company’s fourth quarter 2022 earnings call in February, management said it was aiming to lessen the effect on profit of price compression by improving operating efficiencies and putting more efforts into establishing verticality, i.e., by selling its own house brands through GTII-owned stores.

Based in Chicago, Green Thumb currently generates revenue in 15 states in the US, with 18 manufacturing facilities and 79 operating dispensaries.

“We will also be listening for an update on New Jersey, which has been the primary driver of y/y growth for many MSOs. Finally, Florida will be of particularly interest, given last year’s announced partnership with Circle K,” Stanley wrote.

“With the adult-use legalization campaign having made significant progress on the signature gathering front, Florida’s potential importance continues to climb,” he said.

Further afield, the analyst thinks GTII’s revenue will move from $1,017 million in 2022 to $1,077 million in 2023 and to $1,272 million in 2024. On adjusted EBITDA the call is for $352 million in 2023 and $455 million in 2024.

Stanley said GTII is currently trading at 4.2x his 2024 EV/EBITDA forecast, which represents a 13 per cent discount to the 4.9x average among CSE-listed US cannabis operators.

“We continue to believe GTII deserves a premium valuation, given its strong EBITDA/cash flow margin track record and strong balance sheet,” he said.

At press time, Stanley’s C$28 target represented a one-year return of 192 per cent.