Village Farms keeps “Buy” rating, has price target cut at Beacon

Following the company’s fourth quarter results, Beacon Securities, Beacon Securities analyst Doug Cooper has cut his price target on Village Farms (Village Farms Stock Quote, Chart, News, Analysts, Financials NASDAQ:VFF).

On March 13, VFF reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted an Adjusted EBITDA loss of (C) $9.1-million on sales of $82.6-million.

“Over the past three years we have organically grown our Canadian Cannabis business into a perennial market share leader and one of the only operators with a track record of positive cash flow from operations,” CEO Michael DeGiglio said. “Today’s results reflect a continuation of these trends and demonstrate our ongoing efforts to align our resources and inventory toward more profitable growth opportunities both at home and internationally.”

Cooper says this marks a pivot for the company.

“In a bit of a strategic pivot domestically, VFF has indicated that it has pulled back from the pure “value” segment of the market,” he wrote. “While it will continue to offer consumers multiple price points, it noted that the value segment does not offer the margin potential commensurate with the quality of its product. The short-term impact has been a reduction in its cannabis inventory and a loss of market share in that pure value segment of the market. However, management is confident that it will lead to higher margins on domestic product offerings. Management believes with this shift it will grow domestically by ~5-6%. That would imply FY25 branded sales of ~C$150 million.’

In a research update to clients March 13, Cooper maintained his “Buy” rating, but cut his price target on VFF from (US) $3.00 to $2.00, still implying a return of 194% at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $21.0-million on revenue of $344.2-million in fiscal 2025.

Cooper says any way you slice it, this is a cheap stock.

“VFF’s current market cap is a mere $75 million with an EV of less than $100 million,” he said. “Its P/book value is 0.3x and ~0.5x excluding goodwill and intangibles (which also dramatically undervalues the replacement cost of its greenhouse assets),” he wrote. “If VFF can maintain a break-even produce segment (including covering all corporate overhead costs) AND it can grow its cannabis segment profitability as noted above, the company is trading at ~3.5x this year’s cannabis EBITDA.”