Cantor Raises Canopy Growth Target After Q1 Earnings Call

Canopy Growth Corp’s CGC first-quarter results reflected the company’s transition phase, with a new organization structure, trimmed strategy and supply chain review.

Cantor Fitzgerald analyst Pablo Zuanic maintained a Neutral rating for Canopy, while raising the price target from 25.50 Canadian dollars ($19.11) to 27.50 Canadian dollars ($20.60).

The Canopy Thesis: While the company delivered a sales beat for the first quarter, this was against conservative guidance and its B2B (business-to-business) sales growth lagged the industry, Zuanic said in the note.

Even after adjusting for provisions, net sales at Canopy’s B2B business grew by only 5% sequentially to $38.3 million, which is below total market growth of low- to mid-teens. Sales at the company’s retail business declined by 29% sequentially, mainly due to own and managed store closures, below the total market growth of high teens, the analyst noted.

There was limited improvement in Canopy’s EBITDA in the quarter, although the company managed to curtail its cash burn. Canopy’s adjusted gross margin of 7% in the first quarter was meaningfully short of the 42% reported in the previous quarter.

“We realize with $2Bn in cash (and securities), the company can afford to think big,” Zuanic further wrote.

He added that the price target had been raised to reflect improved underlying sales trends.

CGC Price Action: Shares of Canopy Growth had spiked to $18.35 at the time of publication.

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