Cantor's Zuanic Stays Neutral On Ayr Wellness Stock On The Heels Of Q1 2021 Report, Trims 12-Month Price Target

Vertically integrated cannabis company Ayr Wellness Inc. AYR AYRWF reported Wednesday that its revenue spiked 74% year-over-year, reaching $58.4 million in the first quarter of 2021, beating the consensus sales estimates.

The Analyst

Cantor Fitzgerald's analyst Pablo Zuanic reaffirmed their "Neutral" rating on Ayr's stock, trimming their 12-month price target to $33.5 from $36.

Over the quarter, the Toronto-based company wrapped up the acquisition of Liberty Health Sciences, adding 42 Florida-based stores to its portfolio.

In addition, it purchased Arizona-based Blue Camo LLC, which operates as Oasis, and its three medical and adult-use dispensaries in the greater Phoenix area. Ayr also bought a triple-stacked cultivation and processing facility in Chandler, which spans 10,000 square feet, as well as 86,000 square feet of cultivation property in Phoenix, which is still under development.

Ayr ended the quarter by closing the $17 million acquisition of Ohio-based Parma Wellness Center LLC.

The company currently operates in six states, with plans to debut in New Jersey in the third quarter of 2021 via the acquisition of GSD NJ, LLC, which is doing business as Garden State Dispensary.

Zuanic estimates that the "new" states yielded around $8.7 million during the first three months of 2021. He said that Ayr's recent deals will likely drive top-line growth resulting in $702 million in sales in 2022.

The company anticipates its 2022 revenue to hit at least $725 million.

Ayr also expects to generate $90 million in revenue in 2021, with adjusted EBITDA margins in the 30% range.

Zuanic is "skeptical of the >41% EBITDA margin target by 2022," adding that mid-30s is more reasonable.

"Yes, vertically integrated operations will likely boost margins - especially in states where at present it mainly operates retail - but we calculate the >41% margin target is not far below where MA is at present," Zuanic added.

Ayr Wellness Q1 2021 Financial Highlights

• Adjusted EBITDA came in positive, at $18.4 million on a US GAAP basis, representing a 136% year-over-year growth and a 31.5% margin.
• GAAP adjusted EBITDA margin fell sequentially by 6pt, Zuanic said, driven by lower margins of the new states at present.
• Ayr also reported that US GAAP operating loss was $8.4 million, including non-cash and one-time expenses of $26.5 million, compared to an $8.6 million loss in the same quarter of 2020.
• Adjusted gross profit amounted to $31.4 million, versus $16.7 million in the same quarter of last year.

"We think well-funded Ayr will likely outperform the S&P in the year ahead, together with most of the rest of the MSOs," Zuanic said, adding they "do not expect the stock to rerate meaningfully over the next 12 months."

Ayr Wellness Price Action

Ayr Wellness shares were trading 5.68% higher at $31.55 per share at the time of writing.

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