Is AYR stock a buy?

Following the company’s first quarter results, Beacon analyst Russell Stanley has maintained his “Buy” rating on Ayr Wellness (Ayr Wellness Stock Quote, Chart, News, Analysts, Financials CSE:AYR.A).

On May 15, AYR reported its Q1, 2024 results. The company posted Adjusted EBITDA of $29.1-million on revenue of $118.0-million.

“Two thousand twenty-four continues to be about execution for Ayr, furthering the progress we made in 2023 by focusing on improving product quality and consistency, building a loyal retail customer base, rebuilding our CPG brand platform, and continuing to prioritize cost controls,” said CEO David Goubert. “I want to thank our team for their continued effort against these goals. First quarter results reflect continued progress with modest sequential revenue growth, adjusted EBITDA margins in line with long-term targets of 25 per cent and positive free cash flow for the period.”

The analyst says this quarter beat expectations on both revenue and Adjusted EBITDA.

“Earlier today, AYR reported Q1 revenue/adjusted EBITDA of $118M/$29M, beating our $116M/$27M forecast and slightly ahead of consensus at $115M/$28M,” he wrote. “In mid March, management guided to Q1 revenue being flat-to-modestly higher v. the $115M produced in Q4, so the 3% q/q growth was in line with the guide while our estimates/consensus proved relatively conservative. Adjusted gross margins were 249 bps below our forecast and down 94 bps q/q. Management noted that price compression has generally stabilized except for certain markets (specifically NJ given increased retail competition). This was more than offset by lower (better) than expected OPEX margins, with adjusted EBITDA margins beating our forecast by 111 bps. AYR produced operating cash flow before working capital of $2M v. our forecast of $11M, and $9M after working capital v. our forecast of $10M. We note that days-sales-in-inventory ticked up to 152 days in the quarter. Management noted that efforts to streamline operations and improve the pace at which product moves through the supply chain and off of shelves should support a reduction in DSI/improved operating cash flow in H2. ”

In a research update to clients May 15, Stanley maintained his “Buy” rating and price target of $8.00 on AYR, implying a return of 134% at the time of publication.

The analyst thinks AYR will post Adjusted EBITDA of $121-million on Net Revenue of $492-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $154-million on a topline of $574-million in fiscal 2025.

“AYR trades at just 5.5x our F2025 adjusted EBITDA forecast. This represents a 25% discount to the 7.4x average amongst US operators. Potential company specific catalysts include progress on the tax refunds, buildout updates, the Q2 results in August and M&A activity,” Stanley added.