WEED stock still better than a double from here, Roth says

Is Canopy Growth (Canopy Growth Stock Quote, Chart, News, Analysts, Financials TSX:WEED) a buy?

Yes, says Roth MKM analyst Bill Kirk who has lowered his price target on the stock, but remains convinced that recent moves have made the path to positive EBITDA more probable for the embattled company.

“With BioSteel’s move to discontinued operations, the path to positive EBITDA has become clearer,” the analyst argued. “Canopy’s Canadian business has run-rate net sales to leverage imminent cost structure. Peers of similar size are adj. EBITDA profitable, and Canopy carries leading U.S. relationships and optionality. With C$60mn in cost savings, EBITDA losses will turn to gains: Canopy should exit FY’24 positive adj. EBITDA.”

In a research update to clients November 10, Kirk maintained his “Buy” rating, but lowered his price target from $3.00 to $2.00, implying a return of 185.7 per cent at the time of publication.

The analyst thinks WEED will post an EPS loss of $0.67 on revenue of $331.9-million in fiscal 2024. He expects those numbers will improve to and EPS loss of $0.05 on a topline of $346.5-million the following year.

“Our C$2 price target is DCF based and implies ~21x EV/2026 EBITDA. We assume: 1) Canopy achieves positive adjusted EBITDA upon closing of U.S. structuring or end of FY’24 (ex.BioSteel); 2) terminal growth market of 3% (global pop plus inflation); 3) capex normalizes at C$160mn; and 4) a WACC of ~7.7%,” the analyst concluded. “Impediments to achieving our PT include: 1) an inability to take full/consolidated ownership of U.S. assets; 2) equity financing/asset sales disappoint; and 3) continued inaction on U.S. legislative front.”