Beacon Securities analyst Russell Stanley still likes US pot stock Ascend Wellness (Ascend Wellness Stock Quote, Charts, News, Analysts, Financials CSE:AAWH.U), but reduced expectations for the year ahead have prompted a target price reduction. In a Wednesday report, Stanley reiterated a “Buy” rating on Ascend while lowering his target from C$6.25 to C$4.75 per share, implying a potential 12-month return at the time of publication of 631 per cent.
New York-headquartered multi-state operator Ascend, which has licenses and assets in Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania, reported revenue up 26 per cent year-over-year to $123.0 million for its second quarter 2023. Retail revenue was up 19 per cent and gross wholesale was up 45 per cent, while adjusted EBITDA was up two per cent to $21.3 million. (All figures in US dollars except where noted otherwise.)
“With the team’s strong performance in the quarter, we remain optimistic about the future of the business and continue to see substantial growth across all areas, particularly in our retail outlet model,” said CEO John Hartmann in a press release. “As we expand our presence into Maryland’s adult-use market and closely monitor Ohio’s upcoming recreational cannabis ballot, we are confident in Ascend’s continued success and potential for further growth.”
Stanley said the Q2 numbers beat his estimates, with the revenue and EBITDA of $123 million and $21 million, respectively, coming in ahead of his forecast at $114 million and $19 million, respectively, and the consensus at $116 million and $21 million, respectively.
Stanley called the $25 million in cash from operations strong, even excluding the benefit of a $23 million employee retention tax credit. From the quarterly conference call, the analyst said management reported it’s feeling increasingly comfortable with its 2024 estimates for revenue nearing $600 million with $125 million in adjusted EBITDA.
On the company’s Illinois operations, Stanley said with about 30 new stores opened year-to-date, management is now predicting another 20 to open before the year’s end.
Stanley has made what he called relatively minor revisions to his 2023 forecast, now calling for $483 million in revenue and $90 million in adjusted EBITDA.
“Ascend trades at 3.1x our revised F2024 adjusted EBITDA forecast. This represents a 35 per cent discount to the 4.7x average amongst CSE-listed US operators. Potential company-specific catalysts include further buildout updates, M&A and the Q3 results in November,” Stanley wrote.