Ascend Wellness has a 446% upside, Beacon says

Following preliminary results, Beacon Securities analyst Russell Stanley remains more than bullish on Ascend Wellness Holdings (Ascend Wellness Stock Quote, Chart, News, Analysts, Financials CSE:AAWH.U)

On October 25, Ascend reported preliminary third quarter results. The company said it expects record revenue of approximately $140-million, with EBITDA in the $27-million to $29-million range.

“Based on our preliminary evaluation, Q3 2023 marks a noteworthy milestone for our company as our preliminary results have exceeded expectations,” said executive chairman Abner Kurtin. “We are thrilled to report record-breaking revenue, accompanied by a significant increase in adjusted EBITDA and continued healthy cash flow generation. These achievements underscore our dedication to delivering exceptional value to our shareholders and solidify our position as a leader in the industry.”

Stanley summarized the development.

“Ascend has announced preliminary Q3 revenue/adjusted EBITDA of $140M/$27-$29M, beating our forecast for $129M/$22M, pre-announcement consensus at $127M/$22M and the street high estimates at $130M/$23M. The company also predicted it would report positive operating cash flow as well as its first quarter of positive free cash flow, both before and after cash related to an employee retention tax credit. We had forecast negative $3M for CFO and negative $13M for FCF, respectively, so based on the prelims, the quarter looks much stronger than we/anyone anticipated. We have increased our Q3 revenue/adjusted EBITDA forecast to $140M/$27M, though we have made no material changes to our F2024 forecast.”

In a research update to clients October 25, Stanley maintained his “Buy” rating and one-year price target of $4.75 on Ascend Wellness, implying a return of 446 per cent at the time of publication.

Stanley thinks Ascend will post Adjusted EBITDA of $99-million on revenue of $518-million in fiscal 2023. He expects those numbers will improve to EBITDA of $124-million on a topline of $591-million the following year.

The analyst says Ascend stock is trading at a 37 per cent discount to its peers.

“Since late August, when the HHS recommended that cannabis be rescheduled under the Controlled Substances Act, AAWH is up 47% v. the group average return of 34%. Ascend is now trading at 3.6x our F2024 EBITDA forecast. This represents a 37% discount to the 5.7x average amongst CSE-listed US operators. Potential company-specific catalysts include the Q3 results/commentary on November 7th, additional buildout activity and M&A activity.”