VFF stock keeps “Buy” at Beacon after “best quarter in two years”

After a quarter that was better than expected, Beacon analyst Doug Cooper remains extremely bullish on Village Farms International (Village Farms International Stock Quote, Chart, News, Analysts, Financials Nasdaq:VFF)

On November 8, Vancouver-based Village Farms reported its Q3, 2023 results. The company posted Adjusted EBITDA of (US) $4.6-million on Consolidated Revenue of $69.5-million.

“We delivered continued strong improvement in our financial results in the third quarter, building on the first half of the year,” said CEO Michael DeGiglio. “Solid, profitable performance from each of our Canadian and U.S. Cannabis businesses, together with another quarter of significant year-over-year improvement in our Fresh Produce operations, is proving out our strategic decision to build upon our unmatched expertise in controlled environmental agriculture to deliver positive cash flow and profitability as we pursue growth in each of our businesses. The combined performances of our businesses in the third quarter were reflected in positive consolidated adjusted EBITDA, as well as consolidated cash generation, with positive contributions from each of our operating segments.”

Loe says the current share price makes the company’s outperformance compelling.

“Q3 EBITDA was $3.5m, a significant improvement from the ($2.6m) last year and driven by a significant improvement in its produce segment ($1.5m gross profit including depreciation versus ($3.3m) last year),” the analyst said. “In fact, this was the best EBITDA performance for the company since Q4/FY21 and the 4th best EBITDA results over the past 23 quarters (only bettered in Q4/FY21 and Q3/F21 and Q3/FY20). Note that the last time VFF reported such a robust EBITDA quarter, the stock was ~$7.00 and was trading at ~20x EV/LQA EBITDA. The stock now trades at 6x LQA EBITDA.”

In a research update to clients November 13, Cooper maintained his “Buy” rating and one-year price target of (US) $2.50 on VFF, implying a return of 279 per cent at the time of publication.

Cooper thinks VFF will post Adjusted EBITDA of (US) $6.1-million on revenue of $281.1-million in fiscal 2023. He expects those numbers to improve to Adjusted EBITDA of $17.1-million on a topline of $297.8-million the following year.

“Given its improving produce segment, which in turn is helping its balance sheet, we are becoming even more constructive on the leaders within the cannabis industry, of which VFF is clearly one of in the Cdn market,” the analyst concluded.