Analysts Say U.S. MSOs Trulieve and Curaleaf Are a Buy With Upside of Up to 177%
North of the Border, Cannabis 2.0 Sales Could Lift Shares of Valens and VIVO Stock
It’s been a busy week in the cannabis sector as four different analysts have initiated coverage or released research updates on U.S. multi-state operators (MSO) Trulieve Cannabis (CSE: TRUL) (OTCQX: TCNNF) and Curaleaf Holdings (CSE: CURA) (OTCQX: CURLF) as well as Canadian licensed producers (LP) Valens Groworks (TSXV: VLNS) (OTCQX: VGWCF) (FRA: 7LV) and VIVO Cannabis (TSXV: VIVO) (OTCQX: VVCIF) (FRA: 23Q). All four North American cannabis stocks received ‘Buy’ ratings and bullish price targets.
As we’ve detailed over the past couple of weeks, cannabis stocks are likely in the early stages of a new uptrend following the confirmed technical reversals of Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1) and Aphria (TSX: APHA) (NYSE: APHA) (FRA: 10E). Barring any unforeseen negative catalysts, quality pot stocks should continue to trend higher in 2020 as the industry moves on from a turbulent 2019 year.
On Tuesday, we updated our readers on Aphria and analyst Aaron Grey of Alliance Global Partners who initiated coverage on APHA stock. Grey placed a ‘Buy’ rating on Aphria while slapping an $11 Price Target on APHA shares. As of today’s closing price, the analyst’s target price implies a potential upside of 46.28% from these levels.
Today we’ll review new ratings and price targets released this week by Echelon Wealth Partners, Beacon Securities, M Partners and Clarus Securities relating to the four North American cannabis operators mentioned above. Let’s get started.
- Analyst: Matthew Pallotta | Echelon Wealth Partners | Initiated Coverage
- Rating: Buy
- Price Target: $21 | New
- Today’s Close: $14.71
- Implied Upside: +42.76%
Pallotta’s Comments on Trulieve
“The company is a unique case study within the universe of publicly-traded US cannabis businesses. Its differentiated strategy of ‘depth’ versus ‘breadth’ of market presence has seen it establish an unrivalled share of the Florida medical market (~50 percent of volumes), and sales and EBITDA generation in line or higher than many of its 10+ state MSO peers, while deriving >90 percent of its business from a single state. Local economies of scale have allowed it to post industry-leading margins, high returns on invested capital and positive operating cash flows (after tax and interest), making it one of the lower-risk investment options amongst its MSO peers, in our view,” stated Pallotta.
TRUL Financial Forecast (USD)
- Fiscal 2020: Revenue of $370.6 million and adjusted EBITDA of $138.2 million.
- Analyst: Russell Stanley | Beacon Securities | Research Update
- Rating: Buy
- Price Target: $25 | Reiterated
- Today’s Close: $9.01
- Implied Upside: +177.47
Stanley’s Comments on Curaleaf
“Given the challenging capital market conditions that most cannabis companies face, we believe that the moderation of valuation expectations, combined with the need for growth financing, makes CURA well positioned to take advantage of opportunities as they arise. As shown on page 3, the stock has had a terrific run, with the recent pause at the 200-day MA likely to prove temporary given the stock’s strong momentum. This makes CURA a timely purchase on both a fundamental and technical basis,” said Stanley.
CURA Financial Forecast (USD)
- Fiscal 2020: Managed revenue of $1.12 billion and attributable EBITDA of $360 million.
- Fiscal 2021: Managed revenue of $2.14 billion and attributable EBITDA of $899 million.
- Analyst: Paul Piotrowski | M Partners | Initiated Coverage
- Rating: Buy
- Price Target: $7.80
- Today’s Close: $3.75
- Implied Upside: +108%
Piotrowski’s Comments on Valens
“Valens currently trades at a discount to its peers despite its defensible, high-margin, FCF-generating business model. We believe Valens is uniquely positioned to succeed in Cannabis 2.0 and to continue to generate cash flow and return capital to shareholders. With 11 extraction and 11 white label agreements comprising over 240,000 kg in contracted demand, near term forecasts are de-risked. Contracted demand is recurring and diversified, with a customer base that includes Shoppers Drug Mart, Iconic Brewing Co., BRNT Ltd. and several large-cap LPs. Valens is [also] the only largescale extraction company in Canada that can facilitate five different extraction methods,” said Piotrowski.
“Valens continues to trade at a discount to its peers, while in our view being the best equipped to succeed in Cannabis 2.0. Valens trades at 6.2x 2020 EBITDA vs. peers at 16.5x 2020 EBITDA. We believe the discount is unwarranted as Valens has consistently reported strong revenue growth and margins and is the only cannabis company in Canada generating free cash flow. As Valens continues to report strong quarters, shares should rerate closer to its peers,” added Piotrowski.
VLNS Financial Forecast (CDN)
- Fiscal 2019: Revenue of $56.2 million and adjusted EBITDA of $23.1 million.
- Fiscal 2020: Revenue of $160.8 million and adjusted EBITDA of $68.2 million.
- Analyst: Noel Atkinson | Clarus Securities | Initiated Coverage
- Rating: Speculative Buy
- Price Target: $0.70
- Today’s Close: $0.46
- Implied Upside: +52.17%
Atkinson’s Comments on VIVO
“VIVO Cannabis is probably the most differentiated small LP in Canada. Its two Canadian units – ABcann and Canna Farms – were two of the first Licensed Producers in this country. Meanwhile, VIVO is poised to launch cannabis sales in Europe via the pharmacy channel, and its executive team just happens to have decades of collective experience in selling pharmaceuticals in Europe. Between a string of new cannabis 2.0 products for the rapidly-growing Canadian adult-use market (including some of the first premium concentrates offered in the country) and a medical cannabis import/distribution unit launching in Europe this year, we expect VIVO to have one of the highest revenue growth rates of any Canadian cannabis LP over our forecast period,” wrote Atkinson.
VIVO Financial Forecast (CDN)
- Fiscal 2020: Revenue of $47.2 million and an adjusted EBITDA loss of $2.6 million.
- Fiscal 2021: Revenue of $94.6 million and adjusted EBITDA of $14.7 million.
Charts source: Barchart.com
Disclosure: The Cannabis Investor does not hold a position in any of the stocks mentioned in this article.