CL stock is a buy, Haywood says

Following the company’s third quarter results, Haywood Capital Markets analyst Neal Gilmer has maintained his “Buy” rating on Cresco Labs (Cresco Labs Stock Quote, Chart, News, Analysts, Financials CSE:CL).

On November 15, Cresco reported its Q3, 2023 results. The company posted Adjusted EBITDA of (US) $49-million on revenue of $191-million

“Our third quarter results demonstrate our ability to drive solid performance, with strong gains to our margin and operating cash flow, by continuing to execute on a strategy where we win in our core markets, and with our core stores, core brands and core products.

“Cresco Labs is leaner and more productive than ever,” said CEO Charles Bachtell. “We generated $191-million of revenue, with strong growth in retail and good performance in our core helping to balance the impact of strategic divestitures. Compared to the first quarter, when we started executing the year-of-the-core strategy, we’ve held revenue relatively flat while improving our adjusted gross margin by over 480 basis points, and reduced our quarterly adjusted SG&A by over $10-million. This tremendous progress in our margin and cost profile led to adjusted EBITDA of $49-million in Q3, which is almost $20-million more than Q1. Our operating cash flow was $41-million in Q3, almost double what we generated in Q1 and Q2 combined.”

Gilmer summarized the quarter.

“Last week Cresco reported Q3 financials that highlighted the accomplishments the management team has made on improving gross margins and lowering operating expense that contributed to an impressive jump in EBITDA margins and overall outperformance on the quarter,” he wrote. “While the Company has exited certain markets it should drive improved ability to generate positive cash flow over both the immediate and long-term.”

In a research update to clients November 22, Gilmer maintained his “Buy” rating and one-year price target of $3.75 on CL, implying a return of 66 per cent at the time of publication.

The analyst thinks CL will post EBITDA of (US) $161.4-million on revenue of $763.7-million in fiscal 2023. He expects those numbers will turn to EBITDA of $179.9-million on a topline of $747.4-million in fiscal 2024.

“We use an 11x EV/EBITDA multiple on our F2024 EBITDA estimate then discount by 15%,” the analyst concluded. “Cresco is currently trading at 7.2x our F2024 EBITDA estimate, compared to the Tier 1 US peer group at 7.4x consensus F2024 EV/EBITDA estimates (excl. hi/lo).”