Following the end of its BioSteel sports drink experiment, Roth MKM analyst Bill Kirk thinks there is money to be made on Canopy Growth Corp (Canopy Growth Corp Stock Quote, Chart, News, Analysts, Financials TSX:WEED)
On September 14, Canopy Growth announced that it would cease funding its money-losing BioSteel sports drink unit. The company had acquired BioSteel in 2019.
The analyst, on October 23, reported his model adjustment for WEED following the discontinued operations of BioSteel.
“To adjust for last month’s news to stop BioSteel funding, we are adjusting the segment (revenue contribution and EBITDA drag) to discontinued operations in our model, he explained. “Recall, BioSteel represented ~60% of Canopy’s 1Q EBITDA loss (~C$35mn of C$58mn). Canopy has received creditor protection for BioSteel, where they are the senior, secured lender (~C$350mn), while also owning ~90% of the equity. With expected annual cash savings of >C$100mm from the move, Canopy should exit FY’24 positive adj. EBITDA.”
These moves have predictably caused a lower topline and better bottom line for the company, in Kirk’s new estimates.
“We are updating our Canopy numbers to reflect BioSteel’s move to discontinued operations. For 2Q’24, we are now modeling net sales of C$83.2mn (from C$94.7mn) and adjusted EBITDA of -C$29.4mn (from -C$43.6mn). For FY24, we are modeling net sales of C$362.9mn (from C$404mn) and adjusted EBITDA of -C$102.5mn (from -C$128.1mn).
In a research update to clients October 23, Kirk maintained his “Buy” rating and one-year price target of $3.00 on WEED, a price that implied a return of 328.6 per cent.
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