Analyst explains how Village Farms could hit $8.50 a share

Village Farms International’s (Village Farms International Stock Quote, Chart, News, Analysts, Financials NASDAQ:VFF) stronger-than-expected third-quarter results and plans to expand cannabis production in British Columbia could substantially increase earnings, according to Beacon Securities analyst Doug Cooper.

In a Nov. 9 report, Cooper maintained his “Buy” rating and US$8.00 target, arguing that the company’s existing production capacity and potential expansion into Texas are not fully reflected in its share price.

“Early innings globally means demand for more capacity in the future,” Cooper said. “However, to take full advantage of global opportunity, such capacity needs to both meet stringent regulatory controls as well as be able to produce product at low-cost and on consistent basis.”

Village Farms reported third-quarter revenue of US$66.9-million, up from US$64-million in the previous quarter, while Adjusted EBITDA increased to US$18.2-million from US$15.4-million. Net income reached approximately US$10-million, up from US$7-million, with US$8-million in free cash flow increasing the company’s net cash position to US$41-million.

Cooper said the $2.8-million increase in revenue translated into an equivalent increase in Adjusted EBITDA, demonstrating the earnings potential of additional production.

International cannabis revenue, primarily from Germany, increased 75% year-over-year to $20.8-million. Canadian branded cannabis sales reached $25.3-million, up 10% sequentially.

Village Farms is expanding production at its Delta, B.C., complex from approximately 120 tonnes to 160 tonnes annually, with the expansion expected to reach full production in the second half of 2027. Cooper estimates the expanded facility could generate approximately US$300-million in annual revenue.

The company has also informed its produce partners that it may convert 25% of its D1 greenhouse to cannabis cultivation, potentially adding more than 50 tonnes of production and US$100-million in annual revenue.

“Producers need capacity to meet demand. They also need that capacity to be able to generate low-cost product and meet stringent regulatory standards,” Cooper said. “VFF has both, with the ability to continue to bring on more material to meet growing global demand.”

In the Netherlands, Village Farms expects its facility to reach annual production capacity of 10 tonnes by early 2027, following a temporary reduction in output during the third quarter.

Cooper also sees longer-term potential in Texas, where the company owns a 2.5-million-square-foot greenhouse facility in Monahans. He believes changes to state cannabis legislation could create a medical cannabis market exceeding US$3-billion. However, Village Farms does not currently hold a Texas cannabis licence, and Cooper has assigned no value to the facility in his formal valuation.

Cooper expects Village Farms to generate revenue of US$294-million and Adjusted EBITDA of US$70-million in fiscal 2027.

“Just based on our FY27 forecast, the stock is trading at 4.7x EBITDA,” he said. “We believe this is incredibly compelling given its market position, its significant competitive moat and its growth potential.”

The analyst also estimates the company’s current capacity expansions could support approximately US$363-million in annual revenue and US$90.8-million in Adjusted EBITDA in fiscal 2028. In a more optimistic scenario that includes the D1 conversion and potential Texas production, Cooper estimates annual revenue could reach US$558-million and Adjusted EBITDA US$150.7-million.

Those projections are illustrative and depend on additional investment, expanded production and regulatory developments.

He estimates Village Farms would trade at $8.50 per share if its existing expanded operations received a comparable valuation, supporting his unchanged $8.00 target.

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