VEXT Science has price target trimmed at Echelon

After second quarter results that were below estimates, Echelon Capital Markets analyst Andrew Semple has lowered his price target on VEXT Science (VEXT Science Stock Quote, Chart, News, Analysts, Financials CSE:VEXT).

On August 23, VEXT reported its Q2, 2023 results. The company posted Adjusted EBITDA of $1.5-million on revenue of $9.19-million, a topline that bested the $8.77-million topline the company posted in the same period last year.

“During Q2, our team’s efforts to drive more traffic with targeted promotions and a broad selection of value-based products were successful, and led to gains in market share in a challenging environment,” CEO Eric Offenberger said. “We made the strategic choice to accept lower gross margins in Q2, in order to generate a return on the product from our recently idled outdoor grow, as pricing remains under pressure due to overcapacity in the market. We are well-positioned from a vertical perspective, with indoor capacity from our Eloy facility picking up the slack and ensuring we are matching demand at our owned retail locations with our own internal supply. We expect gross margins to progressively recover through the second half of Q3 and in Q4, on the way back to more normalized levels. This quarter marked our 13th consecutive quarter of reporting positive EBITDA [earnings before interest, taxes, depreciation and amortization] and positive adjusted EBITDA, demonstrating our ongoing commitment to generating profitability, while prudent working capital management contributed to robust cash flow from operations of $3.4-million through the quarter.”

Semple characterized the quarter.

“Vext Science reported Q223 results that were below estimates,” he said. “Sales surpassed forecasts but margins contracted by more than 20 percentage points q/q, which we view as the larger factor. Vext took actions to liquidate inventory to support its cash position, though this caused pressure on the Company’s margin profile due to both cash and non-cash charges. We believe the Company will see gradually improved margins in H223, returning to roughly pre-Q223 levels.”

In a research update to clients August 24, Semple maintained his “Speculative Buy” rating on VEXT, but lowered his one-year price target on the stock from $1.25 to $1.00, implying a return of 400 per cent at the time of publication.

Semple thinks VEXT will post Adjusted EBITDA of $9.4-million on revenue of $38.3-million in fiscal 2023. He expects those numbers will improve to EBITDA of $20.2-million on a topline of $57.2-million the following year.