Is Verano Holdings a buy? (June 2024)

Following the announcement of a stock buyback, Roth MKM analyst Scott Fortune has maintained his “Buy” rating on Verano Holdings (Verano Holdings Stock Quote, Chart, News, Analysts, Financials NEO:VRNO).

On June 17, VRNO announced the authorization of a share repurchase program that would allow it to buy up to $50-million of its own shares.

“Our long-standing commitment to operational excellence alongside our focus on capital discipline has set up Verano to generate consistent revenue growth, deliver strong margins and produce leading cash flows,” CEO George Archos said. “The authorization of our first-ever share repurchase program provides an additional outlet for capital deployment alongside other measures such as capital expenditures, strengthening our balance sheet, and potential M&A, as we position Verano for long-term growth and success. Going forward, we will be opportunistic in identifying market dislocations to support the stock and return cash to shareholders.”

The analyst summarized the development.

“VRNO continues to focus on operating in an environment without rescheduling or 280E tax relief near-term, and generating meaningful cash flow to invest in growth capex, M&A, paying down debt, and opportunistically buying back shares,” he wrote. “With its lean operations and ability to execute top-tier margins in a broad footprint, the company is well-positioned to generate increasing cash flow from scaled assets ahead of significant state catalysts in FL, OH, and PA, and the elimination of 280E generating an additional ~$80M in cash flow. The company is also paying down debt ($50M recently) and indicated paying down another $50M by year-end. For these reasons, VRNO remains one of our top picks within our coverage. We believe the recent cannabis industry sell-off tied to rescheduling timing uncertainty (not pricing in SIII happening in ’24) is unwarranted, as we expect the process to be finalized by the elections. VRNO shares are down 24% YTD (vs. MSOS ETF up 4%) and are significantly off compared to top-MSO peers as overhang around a merger termination and NJ retail pressure has weighed on the stock. At these levels, we believe the stock buyback supports the shares and see this as a buying opportunity.”

In a research update to clients June 18, Fortune maintained his “Buy” rating and price target of (US) $10.00 on Verano (listed on the OTCBB as VRNOF).

The analyst thinks the company will post $274.2-million on a topline of $930.4-million in fiscal 2024. He expects those numbers will improve to EBITDA of $304.7-million on a topline of $1.03-billion in fiscal 2025.

“We believe VRNO is well-positioned to benefit from executing within its current operating footprint and generating cash flow for shareholders, but shares are not pricing in potential near-term catalysts. We expect the stock to re-rate with rescheduling finalizing in ’24 and large states of FL, OH, and PA converting to adult use. VRNO trades at 4.8x ’25 EV/EBITDA compared to 6.5x for large-cap peers and we would be buyers at these levels. VRNO remains one of our top picks within our MSO coverage, and we reiterate our Buy rating and $10 PT,” he concluded.