This Analyst Cut Price Target On Canopy Growth After Q1 Earnings Release, Here's Why

On Friday, Canopy Growth Corporation CGC reported a 19% year-over-year drop in net revenue to CA$110 million ($112.2 million) n the first quarter of fiscal 2023.

However, its international medical cannabis net revenue approximately doubled over the same period, driven primarily by strong sales in Israel and Australia. The Canadian cannabis giant is optimistic about the export outlook, given the 30% quarter-over-quarter shipment increase to the two countries.

Canopy’s management is confident that recent cost cuts will result in positive EBITDA by fiscal 2024, Cantor Fitzgerald’s analyst Pablo Zuanic said in his recent note. For the first quarter, adjusted EBITDA came in negative at CA$75 million. 

The Analyst

Zuanic retained a Neutral rating on the stock while cutting his price target to CA$3.70 from CA$3.75 due to the stock/sector derating and reduced estimates.

The Thesis

The analyst also pointed out that the company reported a free cash outflow of CA$143 million in the first three months of the fiscal year, while the net debt nearly doubled, reaching CA$241 million by the end of June when it acquired approximately CA$$263 million of convertible notes from Constellation Brands, Inc. STZ by issuing roughly 77 million shares.

“Even with those actions, at the current burn rate, we think net debt could be 1x by June next year (with the STZ held warrants out of the money, we assume other potentially dilutive actions could be needed),” Zuanic said.

CGC Price Action

Canopy’s shares traded 7.79% lower at $2.665 per share at the time of writing on Friday.

Benzinga Cannabis Capital Conference

Come and meet Pablo Zuanic in person at the Benzinga Cannabis Capital Conference on September 13-14 in Chicago. 

Get your conference tickets HERE. Book your room in the historic Palmer House Hotel HERE.  See you in Chicago!

Photo: Courtesy of gerald by Pixabay