Canopy Growth: Analysts’ Target Price and Ratings

Canopy Growth (WEED) (CGC) stock has been under pressure. The company reported its earnings for the first quarter of fiscal 2020 on August 14. During the quarter, the company missed analysts’ top and bottom-line estimates. The company’s stock price fell due its weak first-quarter performance. There has been weakness across the cannabis sector. As of Monday, Canopy Growth was trading at 33.93 Canadian dollars—a fall of 20.3% since August 14.

As of Monday, 21 analysts covered Canopy Growth compared to 20 analysts in August. On September 20, MKM Partners initiated its coverage on the stock with a “hold” ratings. The firm gave a 12-month target price of 33 Canadian dollars.

Since Canopy Growth reported its second-quarter earnings, Seaport Global Securities has upgraded the stock from “neutral” to “buy.” In contrast, Coremark Securities downgraded the stock from “buy” to “market perform.”

As reported by CNBC on August 26, Seaport is optimistic about the second phase of legalization in Canada, also called “Cannabis 2.0.” The second phase could boost Canopy Growth’s stock price. In a note, Seaport analyst Brett Hundley said, “Although regulatory development has been both disappointing and frustrating, there is no question that cannabis offers an attractive growth profile.” He also said, “In addition, the Canadian space is about to gain a fair amount of pricing power, in our view, as the 2.0 market opens up late this year.”

Despite Canopy Growth’s weak second-quarter performance, analysts have maintained a bullish outlook. Among the 21 analysts that cover the stock, four recommend a “strong-buy,” nine recommend a “buy,” and eight recommend a “hold.” None of the analysts recommend a “sell.”

• Currently, 16 analysts cover Aurora Cannabis (ACB). Eight analysts recommend a “buy,” six recommend a “hold,” and two recommend a “sell.”
• Among the 18 analysts that follow Tilray (TLRY), five recommend a “buy,” 11 recommend a “hold,” and two recommend a “sell.”
• For Cronos Group (CRON), three of the 13 analysts recommend a “buy,” nine recommend a “hold,” and one recommends a “sell.”

In the above graph, you can see that analysts’ consensus target price for Canopy Growth has fallen significantly since July. After the company reported its second-quarter earnings, Alliance Global Partners, Cowen and Company, PI Financials, CIBC, Canaccord Genuity, Benchmark, and Coremark lowered their target price.

As of Monday, analysts’ consensus target price was 54.53 Canadian dollars compared to 71.14 Canadian dollars on July 23. The new consensus target price implies a return potential of 60.7% over the next 12 months. In comparison, Aurora Cannabis, Tilray, and Cronos Group were trading at a discount of 53.6%, 72.3%, and 47.8% from their respective target prices on Monday.

Canopy Growth has lost 7.3% of its stock value YTD (year-to-date). So far, the company has underperformed the broader equity market this year. The S&P 500 Index has increased 19.3% during the same period. However, Canopy Growth’s CFO spoke favorably about the company’s initiative at the Barclays 2019 Global Consumer Staples Conference on September 4. To learn more, read Canopy Growth: Key Takeaways from Its Investor Call.

During the same period, Aurora Cannabis, Tilray, and Cronos Group saw their stock prices fall 0.9%, 60%, and 5.8%, respectively.

In the fourth quarter, Aurora Cannabis’s revenues were lower than the guidance. Following the fourth-quarter earnings, many analysts lowered their target prices. All of these factors caused the company’s stock price to fall. However, Aurora Cannabis plans to focus on expanding its CBD business in the US. The company is getting ready for the second phase of legalization in Canada.

Tilray missed the bottom-line expectations in its first and second-quarter earnings, which caused the company’s stock price to fall. In the second quarter, Cronos Group beat analysts’ revenue estimates. However, the company’s operating losses were higher than expected. During the earnings call, the company’s management announced that its operating losses could rise more in the second half of this year. The announcement might have contributed to the fall in Cronos Group’s stock price.