According to Analysts, Better Than Expected Earnings Make These 3 Top U.S. Multi-State Operators a Buy
Trulieve and Green Thumb Beat Wall Street Estimates After Announcing Q3 Earnings Earlier This Week
It seems Trulieve (CSE: TRUL) (OTCQX: TCNNF), Curaleaf (CSE: CURA) (OTCQX: CURLF) and Green Thumb (CSE: GTII) (OTCQX: GTBIF) have reinvigorated a struggling cannabis sector after the three top U.S. multi-state operators (MSO) announced third-quarter earnings this week beating wall street’s expectations in the process.
This week’s earnings beat could not have come at a better time considering the previous week’s carnage following the big earnings miss from Canadian licensed producers (LP) Canopy Growth (TSX: WEED) (NYSE: CGC), Aurora Cannabis (TSX: ACB) (NYSE: ACB), Cronos Group (TSX: CRON) (NASDAQ: CRON) and Tilray (NASDAQ: TLRY). The big four LPs all announced worse than expected earnings which featured a mindblowing $374.6 million quarterly loss from Canopy Growth.
Just days removed from the record-setting earnings season, leading analysts are updating their clients after factoring in the new financial results.
Trulieve Sees its Price Target Raised
The first analyst to issue a research update was Jason Zandberg of PI Financial on Trulieve following the company’s record Q3 earnings report. Trulieve beat the street on revenue and adjusted EBITDA which came in at $70.7 million and $36.9 million respectively.
Wall Street analysts had Trulieve posting third-quarter revenue of $64.6 million and adjusted EBITDA of $28.9 million which the company easily beat. Trulieve saw its revenue increase 22% quarter over quarter and 150% over Q3 2018. Adjusted EBITDA improved 17% from the $31.6 million recorded in the previous quarter.
Even more impressive, Trulieve was able to post Q3 net income of $60.2 million thanks in part to an $89.1 million gain on biological assets and a $22.9 million adjustment from inventory sold.
“Revenue increased by 22% QoQ from $57.6M to $70.7M. The increase in revenue was mainly driven by increases in patient count as well as more dispensary openings in Florida. TRUL also generated the highest EBITDA number as well as EBITDA margin (of 39%) compared to its MSO peers. Cash flow from operations before working capital during the quarter was $11.4M,” stated Zandberg.
The analyst also noted that Trulieve now has a 52% share of the Florida medical cannabis market. With adult-use legalization in Florida likely to happen in the future, Trulieve stands to see its revenue in the sunshine state soar over the coming years.
Moving forward, Zandberg forecasts that Trulieve will report revenue of $255.3 million and EBITDA of $102.5 million for the full-year fiscal 2019. The analyst expects Trulieve’s numbers will continue to improve in 2020 and is calling for EBITDA of $153 million on revenue of $400.2 million.
“Management reaffirmed its revenue guidance of $220-$240M in FY19 and $380-$400M in FY20 and EBITDA of $95-$105M in FY19 and $140-$160M in FY20. TRUL revenue FY19 YTD is $173.1M and if the Company hits the high end of its FY19 guidance that means Q4 revenue will be around $67M. Trulieve continues to beat expectations and we believe that TRUL will be able to beat its own guidance given its strong market share, increasing retail number, and increasing patient count,” added Zandberg.
After reviewing Trulieve’s impressive quarter, Zandberg issued a research note to clients in which the analyst maintained his BUY rating and raised his one-year price target on the stock from $18 to $20 per share. As of today’s closing price of $15.89, the $20 price target on Trulieve’s stocks implies an upside of 26%.
Curaleaf Has 193% Upside
Up next, we saw analyst Robert Fagan of GMP Securities update his clients on Curaleaf following the company’s strong Q3 earnings. Curaleaf reported its pro forma revenue for the third quarter amounted to $129 million with managed revenue coming in at $73.2 million. The company’s managed revenue increased 201% year over year and 33% over Q2 2019.
Q3 adjusted EBITDA, gross profit and gross margin came in at $9 million, $23.6 million and 47% respectively. Adjusted EBITDA grew 169% sequentially but the company did end up reporting a net loss for the third quarter of $6.8 million.
“With Q3 the 2nd consecutive quarter of positive EBITDA for CURA and at the highest margins on record (14.6%), this reinforces our view that the company has turned the corner on profitable expansion, with more benefits from higher operating leverage to come,” said Fagan.
The analyst expects Curaleaf will report full-year fiscal 2019 EBITDA of $27 million on revenue of $226.1 million. In fiscal 2020 Fagan predicts the company will generate EBITDA of $392.1 million on revenue of $1.06 billion.
“Overall, we are encouraged by CURA’s solid Q3 results demonstrating the company is executing well on growing profitably. Q4 aside, CURA’s growth outlook remains robust with the 2020 guidance intact. Target based on 27.5x 2020 EBITDA of $370 million-plus $185 million of EBITDA we assume acquired,” added Fagan.
After digesting the financial results, Fagan announced he was reiterating his BUY rating on the stock and maintained his price target of $24 per share. As of today’s closing price of $8.20, Curaleaf currently has an implied upside of 193%.
GTII is a Buy
Last but certainly not least, Robert Fagan also issued an update on Green Thumb after the company’s superb Q3 earnings which featured revenue growth of 296% year over year and 52% over the previous quarter. Green Thumb reported revenue of $68 million for the third quarter easily besting the analyst Q3 forecast of $62.3 million.
The company posted EBITDA and adjusted EBITDA for Q3 of $1.6 million and $14.1 million respectively. Quarter over quarter the company saw its adjusted EBITDA improve by 180% from the $5 million recorded in Q2 and EBITDA go from negative $9.4 million into positive territory.
However, Green Thumb did post a net loss for the third quarter of $17.1 million, an improvement over its Q2 net loss of $22.2 million.
“With Q3 representing GTII’s second consecutive quarter of standout results well in excess of consensus, we view this as further cementing the company’s track record of best-in-class operational execution,” stated Fagan.
Fagan believes Green Thumb will continue on its upward trajectory and sees the company posting full-year fiscal 2019 revenue and EBITDA of $217.5 million and $35.3 million respectively. Looking ahead, the analyst is forecasting EBITDA of $164.6 million on revenue of $483.2 million for the full-year fiscal 2020.
“With balance sheet flexibility, renowned product quality, and diligent cost control, we continue to view GTII as amongst the best positioned MSOs to emerge as a long- term winner, and fully capitalize on the strong secular growth of the US cannabis industry,” added Fagan.
With the third quarter financials in, Fagan took the time to review Green Thumb’s earnings and as a result, the analyst reiterated his BUY rating on the company as well as his $32 price target on GTII shares. With GTII closing today’s trading session at $12.90, the $32 price target implies an upside of 148%.
Charts source: Barchart.com
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