Cantor Lowers Price Target On Village Farms, Prefers To Remain 'Sidelined' Despite 25% Drop

Village Farms International, Inc. VFF VFF disclosed its first-quarter consolidated revenue of $52.4 million, up by 63% from the same period in 2020. These consolidated earnings figures, reported Monday, took into count Pure Sunfarm’s financial results, which the company bought in November 2020.

The Vancouver, British Columbia-based greenhouse grower also reported a positive adjusted EBITDA of $400,000, which compares to adjusted EBITDA of $1.1 million in the first quarter of 2020. It generated a quarterly net loss of $7.4 million or a loss of 10 cents per share, down by 276% from a net income of $4.2 million or earnings per share of $0.08 in the same quarter of the prior year.

The Analyst

Cantor Fitzgerald’s analyst Pablo Zuanic kept a “Neutral” rating on Village Farms stock, but lowered their price target to $8.70 from $11.

The Thesis

The analyst lowered his price target on Village Farms based on “sectoral derating and now assuming zero value for the Texas optionality.”

According to Zuanic, the company’s management wasn’t optimistic about its land assets in Texas, “noting federal legalization may happen before TX can agree on a state medical MJ program (i.e., it could take time).”

VFF shares plummeted Monday on the heels of the quarterly earnings report, closing the day 25% down compared to YOLO ETF that was down 4%. According to Zuanic, the drop in shares was “overdone.”

The company’s sales for the branded cannabis business experienced sequential growth of 20% in a market that was up 3%, but this figure was dimmed by a 49% drop in wholesale, explained the analyst.

“But while the stock may have overreacted, we would not call the valuation compelling.”

With no value to the production unit and to the Texas optionality assigned, the stock would trade “at 5.1x CY22 cannabis sales,” the same as comparable stocks such as Aurora Cannabis ACB, HEXO Corp. HEXO, and Organigram Holdings Inc. OGI.

“We prefer to remain sidelined for now, although we recognize the stock could have upside if Pure Sunfarms continues to gain branded domestic market share (up from 3.2% in 2Q20 to 4.9% in 1Q21),” Zuanic pointed out.

With that in mind, and counting its single brand strategy niche, even though successful, there is a limit to how high market share can go, the analyst concluded.

The Price Action

Village Farms shares were trading 0.72% higher at $8.43 per share at the time of writing.

Photo by Diyahna Lewis on Unsplash