Ascend Wellness wins “Top Pick” status at Echelon

Analysts from Echelon Capital Markets have released their Top Picks Portfolio for the second quarter of 2024 and a cannabis stock has caught their eye.

Echelon analyst Andrew Semple likes what he sees from Ascend Wellness Holdings (Ascend Wellness Holdings Stock Quote, Chart, News, Analysts, Financials CSE:AAWH.U).

Semple, who has a “Buy” rating and a price target of $3.50 on AAHW.U (implying a return of 171% at the time of publication) ran down what he likes about the stock right now, in an April 3 report to clients.

“We nominate Ascend Wellness Holdings (“Ascend” or “the Company”) to Echelon’s Q224 Top Picks Portfolio,” the analyst wrote. “Ascend is well positioned in the US cannabis industry with a strong management team, a solid balance sheet, and a portfolio of high-quality limited-license US cannabis markets. Moreover, upcoming regulatory reform at the federal and state level should be catalysts for the shares to re-rate higher. Despite these positive attributes, the stock trades at the lowest EV/EBITDA multiple in our tracking group of large MSOs, which we believe is undeserved. We view Ascend as primed to deliver outsized returns in the months ahead.”

Semple thinks AAWH.U will generate Adjusted EBITDA of (All figures USD) $126.6-million on revenue of $569.5-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $139.2-million on a topline of $591.7-million in fiscal 2025.

“Ascend trades at 4.3x our 2024 EBITDA estimate, a sizeable 48% discount to the average 8.3x multiple for leading US cannabis MSOs in limited-license states, with the next lowest multiple at 6.0x,” the analyst added. “Ascend’s stock has plenty of room to re-rate higher to close the gap to its peers. We see no clear reason for this meaningful valuation gap relative to peers and expect Ascend to narrow this valuation discount in 2024. Moreover, we continue to believe the sector remains broadly undervalued, as federal restrictions on cannabis create uncertainty and limit capital available for US cannabis companies. Operators that provide a clear path to positive FCF with solid balance sheets should outperform in this environment. We believe Ascend poses these qualities after strong operating results in 2023, with an optimistic outlook ahead for further improvement in 2024.”

Disclosure: Nick Waddell owns shares of Ascend Wellness Holdings