AYR Wellness has price target trimmed at Echelon

Following what he describes a “mixed” quarter, Echelon Capital Markets analyst Andrew Semple has trimmed his price target on AYR Wellness (AYR Wellness Stock Quote, Chart, News, Analysts, Financials CSE:AYR)

On August 17, AYR reported its Q2, 2023 results. The company posted Adjusted EBITDA of $29.5-million on revenue of $ 116.7-million, a topline that was up 18 per cent over last year’s second quarter.

“The second quarter represented a meaningful step in Ayr’s journey towards generating meaningful cash flow, as we simultaneously got leaner and more efficient while continuing to lay the foundation for revenue growth, ” CEO David Goubert said. “We generated record adjusted EBITDA [earnings before interest, taxes, depreciation and amortization], up 78 per cent year-over-year with an adjusted EBITDA margin of 25 per cent, and improved our GAAP [generally accepted accounting principles] loss from operations by 81 per cent year-over-year to a loss of $4.5-million. Our efforts around cost savings and optimization accelerated margin expansion ahead of our expectations, and we believe these efforts will enable us to maintain adjusted EBITDA margin in the mid-twenties for the second half as we unlock working capital through aggressive inventory management throughout the remainder of the year.”

Semple said the quarter contained some surprises.

“Ayr Wellness Inc. (“Ayr” or “the Company”) reported Q223 results that were mixed relative to estimates. Revenues posted a surprise sequential decline, falling below both our estimate and the pace of growth indicated by management’s Q123 commentary. Q123 may have been a tough comp due to inventory liquidation that occurred in that quarter, and it appears that pricing levels took a leg lower in Q223 in Florida. Conversely, the Company beat margin and EBITDA forecasts as optimization and cost controls began to take effect, and as the Company increased the share of its own brands sold at its dispensaries. On balance, we view the Q223 results positively because of rapidly improving profitability, and we continue to see ample catalysts for revenues to return to positive growth in H223.”

In a research update to clients August 18, Semple maintained his “Speculative Buy” rating on AYR, but trimmed his price target from $6.00 to $5.50, still implying a more than healthy return of 344 per cent, at the time of publication.

Semple believes AYR will post Adjusted EBITDA of $117.7-million on revenue of $480.4-million in fiscal 2023. He expects those numbers will improve to EBITDA of $141.5-million on a topline of $535.8-million the following year.