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Curaleaf: Target Price and Valuation Multiple after Q2

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Curaleaf (CURLF) (CURA) reported its second-quarter earnings on Tuesday. The company reported a net loss of $0.05 per share on revenues of $48.5 million.

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Curaleaf’s stock performance

Analysts expected Curaleaf to report revenues of $52.28 million and a net loss of $0.01. Despite the lower-than-expected revenues and EPS, the stock rose 9.1% in the last two days. Curaleaf management’s bullish outlook and positive EBITDA during the quarter likely led to the rise in the stock price.

Along with the recent acquisitions of Select and Grassroots Cannabis, Curaleaf’s management expects its pro forma revenues to exceed $1.0 billion in fiscal 2020. The company expects its pro forma EBITDA margin to be higher than 30%. Curaleaf’s management expects it to deliver a positive EBITDA for this fiscal year. All of the major states where the company operates will likely deliver positive EBITDA.

Curaleaf’s EV-to-sales multiple

Although Curaleaf stock has risen 9.1% since its second-quarter earnings, the EV-to-sales multiple remained unchanged at 2.30x. Curaleaf management’s optimistic outlook led analysts to increase their revenue estimates, which offset the higher stock price. In the above graph, you can see that Curaleaf continues to trade at a lower valuation multiple than its peers’ median value. On Thursday, the median valuation multiple was 4.11x. The median value is calculated from the EV-to-sales multiple of 12 cannabis companies mentioned in the graph’s footnote. On the same day, Tilray (TLRY), Aurora Cannabis (ACB), and Aphria (APHA) were trading at EV-to-sales multiples of 8.23x, 10.84x, and 2.16x, respectively.

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Analysts’ recommendations

Analysts look bullish on Curaleaf. Notably, analysts increased their revenue estimates. However, two analysts lowered their target prices. Cormark Securities lowered its target price from 18 Canadian dollars to 15 Canadian dollars. Haywood Securities cut its target price from 20 Canadian dollars to 17.50 Canadian dollars. Overall, analysts have a 12-month target price of 18.02 Canadian dollars. On Thursday, the company was trading at a discount of 94.4% from analysts’ average target price.

Among the eight analysts that follow Curaleaf, three recommend a “strong-buy,” while five recommend a “buy” rating. None of the analysts recommend a “hold” or “sell.”

Peer comparison

Boosted by the recent acquisitions of Select and Grassroots Cannabis, Curaleaf delivered strong returns. The company outperformed its peers and the broader equity market. Curaleaf stock has increased 43.5% YTD as of Thursday. During the same period, Tilray, Aurora Cannabis, and Aphria have returned -62.1%, 8.8%, and 8.5%, respectively.

Tilray reported its second-quarter earnings earlier in August. Although the company outperformed its revenue expectations, its net losses were higher than expected. The higher net losses caused its stock price to fall. Management’s better-than-expected fourth-quarter guidance and the recent acquisition of Hempco Food and Fiber drove Aurora Cannabis’s stock price. On August 1, Aphria reported stellar fourth-quarter earnings. The company beat analysts’ revenue and EPS expectations, which drove its stock price.

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