Cannabist keeps “Buy” rating at Beacon

After what he describes as a “softer than expected” quarter, Beacon Securities analyst Russell Stanley has maintained his “Buy” rating on The Cannabist Company (The Cannabist Company Stock Quote, Chart, News, Analysts, Financials NEO:CBST).

On November 7, CBST reported its Q3, 2024 results. The company posted Adjusted EBITDA of $14.8-million on revenue of $114.8-million.

“The results in the third quarter are indicative of the continued transformation that is under way at The Cannabist Company as we strive to build a better business by strategically reshaping our footprint, streamlining operations and derisking the balance sheet,” CEO David Hart said. “In the third quarter, we closed on significant transactions with the sale of Arizona and eastern Virginia assets for total consideration of approximately $105-million, bringing a significant capital infusion into the business and strengthening our balance sheet. We have exited, or are in the process of exiting, unprofitable and underperforming locations in Florida, Washington, D.C., and Boston. We achieved continued improvement in wholesale and will continue to lean into markets where we have additional capacity and opportunity to grow. In addition, we were extremely well prepared for the transition to adult use in Ohio, which drove an outstanding performance in the quarter.”

In a research update to clients November 8, Stanley maintained his “Buy” rating and price target of $1.30 on CBST, implying a return of 567% at the time of publication.

The analyst explained the reasoning behind the move.

“We are maintaining our C$1.30/sh PT,” he wrote. “CBST recently reported softer-than-expected Q3 results, which we ultimately believe reflects stronger-than-expected forgone performance from the Virginia/Arizona operations sold for $105M in August. Importantly, the company is on the verge of completing its exit from Florida, which should support stronger margins in F2025. During the associated conference call, management reported it is now over halfway through its planned transformation, so we would not be surprised by additional divestiture.”

Stanley thinks CBST will post Adjusted EBITDA of $62.0-million on revenue of $470.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $90.0-million on a topline of $480.0-million in fiscal 2025.

“CBST is now trading at 4.0x our F2025 adjusted EBITDA forecast,” the analyst added. “This represents a 25% discount to the 5.4x average amongst US operators.”

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