Cantor Raises Price Target And Improves Sales Estimates For Village Farms Based On Continual Market Share Growth

Over the past 12 months, Village Farms International, Inc. VFF VFF shares gained 79.74%. 

The British Columbia-based greenhouse grower reported its first-quarter earnings in May with consolidated revenue of $52.4 million, up by 63% from the same period in 2020, and positive adjusted EBITDA. The company’s consolidated earnings figures included Pure Sunfarm’s financial results, which the company acquired in November 2020.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept a “Neutral” rating on Village Farm’s stock and raised their price target to $11.50 from $8.70. 

The Thesis 

Based on reports through the end of May, Pure Sunfarms has been continually advancing market share, having 7.3% on the national level. The company also posted 24% sequential growth of branded adult-use sales in the first quarter, compared to the market single-digit growth, explained Zuanic in a Monday note. 

Furthermore, the company’s leadership aims to obtain a 20% national market share in flower (from 11% currently) and is confident it will also improve its sales of other formats. 

In spite of the company’s single brand strategy and “high dependence on a few strains

(flower is over 80% of sales and the Pink Kush strain is close to two-thirds of its flower sales),” presenting risks, it is difficult to ignore consistent market share improvement and amassing 20% online share in Ontario, highlighted the analyst. 

The company’s management explained their one-brand strategy, saying that Pure Sunfarms is rolling out “high-quality premium products that customers want at an everyday price,” with the company’s average flower price of $5.34 per gram in May being in line with that of Canopy Growth CGC, and just below that of Tilray TLRY and Aurora Cannabis ACB. 

Zuanic changed Cantor's estimates for the company's branded cannabis sales, projecting it will reach $232 million by 2024 (or $272 million when counting bulk), versus previously projected $149 million. “But that figure could be 3 times greater if it can deliver on its market share aspirations,” Zuanic added. 

“While we remain Neutral, we would expect the stock to rerate if Pure Sunfarms can continue to gain market share while keeping margins in line with long-term targets. We will be keeping a close eye on this – if we had full conviction of a meaningful market share ramp, we would rate the stock Overweight,” Zuanic concluded. 

The Price Action

Village Farms’ shares were trading 1.28% lower at $10.77 per share at the time of writing. 

Photo by Tim Foster on Unsplash