Shares of Canopy Growth Upgraded as Investor Sentiment Continues to Shift
WEED Stock Soars 10% on New Bullish Price Target, Lifts Cannabis Sector
Shares of Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1) along with most of the top names in the cannabis sector rallied today after BMO Capital Markets analysts Tamy Chen and Peter Sklar released a bullish research note on the company. The BMO analysts officially Upgraded WEED stock from “Speculative Market Perform” to “Speculative Outperform” and increased their Price Target on Canopy’s stock from $25 to $40 per share. As of today’s closing price, the new price target implies a potential upside of 27.19% from these levels.
Chen and Sklar cited a shift in investor sentiment towards the possibility of Canopy beating Wall Street’s expectations on its next quarterly earnings report due to anticipated strong Cannabis 2.0 sales. The analysts believe Canopy is now selling more cannabis products that consumers actually want and stated the company has pivoted towards a more attractive product mix which includes an increase in value-priced options.
“We believe there is potential upside to street expectations for the fiscal third quarter of 2020 driven by the company’s pivot into a recreational product mix that should now be better aligned with demand,” wrote the analysts.
In the update, Chen noted, although Canopy along with other top Canadian licensed producers (LP) such as Tilray (NASDAQ: TLRY) (FRA: 2HQ) and HEXO Corp. (TSX: HEXO) (NYSE: HEXO) (FRA: 74H) have seen “meaningful market-share expansion,” the analyst believes Canopy’s value-priced brands have an opportunity to steal market share from its competitors Aurora Cannabis (TSX: ACB) (NYSE: ACB) (FRA: 21P) and Organigram Holdings (TSX: OGI) (NASDAQ: OGI) (FRA: 0OG).
“Canopy is not the only LP in our coverage with value-priced products but we believe the stock at current levels offers a better relative return profile considering that a number of other LPs with value-priced brands will continue to be at risk of requiring additional financings,” added Chen.
Canopy’s retail footprint in Canada’s largest province is also strengthening after it was announced earlier this month that the company planned to open an additional 10 Tokyo Smoke stores in Ontario sometime in early 2020.
“With ten new stores set to open in the first half of this year, we are pleased with the momentum we’ve built and excited to bring the Tokyo Smoke experience to more Ontarians. Increasing Tokyo Smoke’s presence across the province will expand access to high-quality cannabis products and education, continuing to migrate cannabis sales from the illicit to the regulated market,” stated Canopy President Rade Kovacevic in a January 6, 2020 press release.
Analysts Raise Q3 Revenue Forecast
In addition to upgrading and increasing the price target on Canopy’s stock, the BMO analysts also made adjustments to their financial projections. They are now forecasting Q3 revenue of CDN $108 million, up from the previously projected CDN $102 million.
“The timing of our upgrade is based on our view that at this point, even a modest beat in FQ3/20 results could begin to shift investor sentiment on the stock,” wrote Chen.
WEED Stock Price Action & Chart
Today’s bullish BMO upgrade caused shares of Canopy Growth’s TSX listed WEED stock to jump 10.8% and close at $31.45 per share. South of the border, the company’s NYSE listed CGC stock closed today’s trading session at $23.92, up 10.95% on the day. Overseas in Germany, Canopy’s Frankfurt listed shares closed trading today up 5.27% at $21.07.
After a confirmed reversal and breakout from an Inverse Head and Shoulders chart pattern earlier this month, Canopy stock has performed as expected and should continue to rise in its newly formed uptrend. Despite a mini flash correction yesterday in the cannabis sector, WEED stock is consolidating beautifully in what appears to be a Bull Flag formation. Bullish flags are a continuation pattern that operates on the same premise as Bull Pennants, the only difference is the shape of the pattern. The fact that yesterday’s pullback was over with so quickly due to the bulls aggressively buying the dip says a lot about the market’s increasingly bullish sentiment. Take a moment to review the chart below and be sure to add Canopy Growth to your Technical Analysis watchlist because another breakout to the upside is highly likely at this time.
Charts source: Barchart.com
Disclosure: The Cannabis Investor does not hold a position in any of the stocks mentioned in this article.