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Earlier this month, Canopy Growth (CGC) (WEED) announced a profit for the first quarter of fiscal year 2020. The company's revenues far exceeded analysts' expectations. Net Canopy Growth losses were also higher than expected. We will discuss analysts' perspectives after Canopy Growth's first quarter results.
Analysts' Perspective on Canopy Growth
Canopy Growth's weak first-quarter revenue drove several analysts to lower their target prices. Benchmark, Canaccord Genuity, CIBC, Global Partners Alliance, Cowen and Company and PI Financial reduced their target prices. Coremark Securities also lowered its target price from "buy" to "perform in the market". Coremark Securities also lowered its target price from 55 Canadian dollars to 48 Canadian dollars.
On Monday, Canopy Growth received a boost from Seaport Global Securities. Seaport Global Securities also indicated a target price of $ 31 per share. Seaport analyst Brett Hundley is optimistic about the "market 2.0" of cannabis in Canada, as CNBC reported on Monday.
At present, Canada allows the sale of cannabis only in the form of dried flower capsules, oil or capsules. However, due to the growth of the cannabis market for recreational purposes, cannabis players want to develop innovative products that will form the 2.0 market. Currently, products are prohibited. The products will probably be legal later this year.
In his research note, Hundley said, "While regulatory developments have been both disappointing and frustrating, there is no doubt that cannabis offers an attractive growth profile," CNBC reported. He also said, "In addition, the Canadian space is on the verge of significant pricing power, in our opinion, as the 2.0 market opens towards the end of this year."
Overall, analysts favor a "buy" rating for Canopy Growth. Of the 20 analysts who follow Canopy Growth, 70% recommend a "buy", while 30% recommend a "maintain". On average, analysts gave the company a 56-month target price of 56.67 Canadian dollars with a return potential of 77.3. % compared to the closing price of 31.97 Canadian dollars on Thursday.
Analyst revenue estimates
For fiscal year 2020, analysts expect Canopy Growth to announce revenue of C $ 646.3 million, up 185.5% from C $ 226.3 million For the same period, analysts are banking on Cronos Group (CRON), Aphria (APHA). and Tilray (TLRY) reported revenue growth of 360.6%, 377.4% and 292.5%, respectively.
Canopy Growth develops value-added products and expands its production facilities to boost sales in the domestic market. The company wants to develop its medical cannabis business on the international market.
In recent years, Canopy Growth has been developing a strategy for spray products. The company's management plans to launch 15 inventory management units in December. Regulations on edible products and cannabis-based beverages are likely to be clarified later this year. Canopy Growth hopes to introduce several edible products. The company plans to launch a portfolio of chocolate products. Recently, the company acquired a former Hershey chocolate factory.
For the US market, Canopy Growth has developed a portfolio of high quality CBD products. The company also acquires the manufacturing facilities needed to market its products. The company's management plans to introduce its DBC products by the end of this year. We expect all of these initiatives to generate revenue for Canopy Growth this fiscal year.
Will the operating loss of Canopy Growth increase?
For fiscal year 2020, analysts expect Canopy Growth to post a negative EBITDA of C $ 279.9 million, compared to a negative EBITDA of $ 257.0 million for fiscal year 2020. The Cannabis Sector is still in the growth phase. As a result, business investment is higher, leading to an increase in operating losses. During the same period, analysts expect Cronos and Tilray to report negative EBITDA of $ 82.9 million and $ 60.5 million, respectively. However, analysts expect Aphria to announce a positive EBITDA of 34.0 million Canadian dollars.
We expect that Canopy Croissance's investments in growth initiatives, such as the development of innovative products and the expansion of its production facilities, will increase its operating expenses.
Stock performance
Canopy Growth's weak performance in the first quarter led to a fall in share prices. Thursday, the company traded at 31.97 Canadian dollars, a decrease of 24.9% since August 14. Wednesday, the company reached its lowest level in 30 weeks, or 30.30 Canadian dollars. We expect the company's share price to bottom around its current price. The company's investments in growth initiatives could improve its performance.
In 2019, Canopy Growth's share price fell by 12.7%. During the same period, the Cronos, Aphria and Tilray groups posted respective returns of 1.9%, 8.5% and -62.1%.
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