Cresco Labs earns target raise at Echelon

Following the company’s first quarter results, Echelon Capital Markets analyst Andrew Semple has raised his price target on Cresco Labs (Cresco Labs Stock Quote, Chart, News, Analysts, Financials CSE:CL).

On May 15, Cresco reported its Q1, 2024 results. The company posted Adjusted EBITDA of $53.2-million on revenue of $184.3-million.

“I want to thank the Cresco team for taking our learnings from the Year-of-the-Core, making them a part of our DNA and producing such a strong start to 2024,” CEO Charles Bachtell said. “The continued development of our teams’ capabilities and our relentless focus on efficient execution is leading to very strong performance across our retail and branded product business resulting in a 10x increase in operating cash flow year-over-year. This is just the start, with upcoming adult use catalysts in Ohio and potential catalysts in Florida and Pennsylvania we have the ability to generate significant operating leverage and additional cash flow going forward. I also want to thank the team for continuing Cresco’s leadership on cannabis reform. The recently announced potential federal rescheduling will fundamentally change the future for cannabis and all of its stakeholders. The team is fulfilling our vision of being the most important company in cannabis and leading the development of the most responsible, respectable and robust industry possible.”

Cresco Labs Inc. reported Q124 results that beat our forecasts,” Semple wrote. “The Company’s revised strategy which focuses on profitable growth in core markets and making improvements to its manufacturing assets to produce high quality cannabis products at low cost is bearing fruit. The successful execution of this strategy is evident after stringing together three consecutive quarters of strong adj. EBITDA beats, generating higher than anticipated revenue, and displaying a remarkable improvement in FCF generation.”

In a research update to clients May 15, Semple maintained his “Buy” rating but raised his price target on the stock from $3.25 to $3.75, implying a return of 33.5% at the time of publication.

The analyst thinks CL will post Adjusted EBITDA of $209.0-million on revenue of $741.5-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $216.7-million on a topline of $784.7-million in fiscal 2025.

“We maintain our Buy recommendation, and we raise our price target to C$3.75/shr (prev. C$3.25/shr) based on a DCF valuation of C$3.85/shr (prev. C$3.31/shr),” Sempled added. “The higher DCF valuation is attributable to higher EBITDA forecasts in all future periods, which in turn is a function of lower opex. We have removed ~$12M/year of opex from our outlook which flows straight to our FCF estimates (due to 280E taxes still incorporated in our model). From another perspective, our DCF valuation improved by $188M, or a 15.6x P/E multiple on the incremental ~$12M in annual cost savings relative to our prior expectation, which we view as reasonable. The implied return to our target price of 33% remains attractive, in our view. This is now roughly in line with the average implied upside for our US cannabis coverage (at 48%), and we believe Cresco now appears much better relatively valued compared to its US cannabis peers, and relative to its operational outperformance in recent quarters. We believe Cresco can continue to outperform our financial forecasts if the Company maintains its discipline with operating costs (while continuing to invest in further automation and growth), and if potential catalysts from federal level regulatory reform or state-level adult-use legalization were to occur.”