Canopy Growth Analysts Parse Q2 Print As Investors Retreat

Over the last six months, Canopy Growth Corp CGC shares have fallen 65.45%.  

The company released second-quarter results Thursday that sent the stock lower. 

The Analysts

Bank of America Merrill Lynch’s Christopher Carey reiterated a Neutral rating on Canopy Growth with a $23 price objective.

Cantor Fitzgerald’s Pablo Zuanic reiterated a Neutral rating with a price target of CA$27 ($20.36).

BofA: Restructuring Charge Explains Revenue Miss 

Canopy’s quarterly results were underwhelming, not because of the sales number, but more because the Street is highlighting the pickup in operating expenses and quarter-to-quarter deterioration in free cash flow, Carey said in a note. 

“Big picture: our sense is that the stock is still down today but, that with the 'kitchen sink' of sorts on sales (provision), we think there will be growing debate as to whether Canopy’s FQ220 represents fundamental trough,” the analyst said. 

The company posted net revenue of CA$76.6 million versus Bank of America's expectation of CA$94 million and the Street's expectation of CA$102 million.

The disparity was mostly because Canopy took CA$32.7 million for a “restructuring charge … for returns, return provisions and pricing allowances primarily related to its softgel and oil portfolio.”

Zuanic: Canopy Growth Holds Positive Outlook 

While Canopy’s financial results could be seen generally as bad news, there are a few positive takeaways from the report, such as recreational pricing that “only” fell 10% and cannabis exports that have doubled, Zuanic in Thursday analyst note.  

Despite worsened gross margins and adjusted EBITDA, the analyst said Canopy Growth holds a positive outlook. 

"It is confident about the 2.0 line up, sees improving domestic market trends (stores and retail sales), and states post restructuring inventories and infrastructure are more aligned with market trends."

Zuanic highlighted several downside risks to Cantor's price objective, such as industry capacity oversupply, misuse of the remaining CA$3.1 billion in cash holdings and a poor start to Cannabis 2.0.

Price Action

Canopy Growth shares were down 15.78% at $15.59 at the time of publication. 

Related Links:

Analyst: Canopy Growth Looks Greener Than It Did 6 Weeks Ago

The Week In Cannabis: Drake And Tony Hawk Get In The Weeds, Linton Joins Vireo, And A Myriad Of Earnings