4 Sep

Charlotte’s Web: What’s the Word on Wall Street?

WRITTEN BY Rajiv Nanjapla

Last month, Charlotte’s Web Holdings (CWBHF) (CWEB) announced its second-quarter results. It missed analysts’ revenue and EPS expectations. The weak results prompted Eight Capital and Benchmark to lower their price targets. Eight Capital lowered its target from 31 Canadian dollars to 25 Canadian dollars, and Benchmark lowered it from $25 to $22. On August 12, Piper Jaffray started covering Charlotte’s Web with an “overweight” rating and a price target of $25, as reported by StreetInsider.

Of the eight analysts covering Charlotte’s Web, two recommend “strong buy” and six recommend “buy.” Their average 12-month price target of 32.33 Canadian dollars implies a 42.6% return.

Analysts’ revenue estimates

This year, Charlotte’s Web expects revenue of $120 million–$170 million. However, analysts forecast its revenue will rise 81.2% YoY (year-over-year) to $125.9 million from $69.5 million. In comparison, analysts expect Charlotte’s Web peers Cronos Group (CRON) and Aphria (APHA) to report YoY revenue growth of 282.6% and 737.5%, respectively.

Charlotte’s Web is focusing on increasing its retail presence, launching new products, and expanding its production and cultivation facilities to drive sales. Currently, CVS and Kroger are some of the leading retailers selling Charlotte’s Web products. In July, Kroger expanded Charlotte’s Web products to four more states. Overall, Kroger sells Charlotte’s Web products in 1,350 of its stores across 22 states. In this year’s first half, Charlotte’s Web expanded its retail presence by over 4,000 locations. And as of August 14, the company’s products were sold in over 8,000 stores.

On August 8, CWEB announced it was building a 137,000-square-foot production and distribution facility in Louisville, Colorado. The company expects it to become operational in early 2020. Also, to meet the growing demand, the company has increased its plantation YoY to 862 acres from 300 acres.

In the second quarter, CWEB launched hemp-extract cannibidiol gummies, and pet product lines for specific health conditions. And in this quarter, the company has signed distribution deals with Pacific Pet and Pet Food Experts. We expect these initiatives to drive CWEB’s revenue going forward.

CWEB’s net profit expected to rise

This year, analysts expect Charlotte’s Web’s net profit to rise by 76.7% YoY to $20.9 million. We expect its revenue growth to offset its higher operating costs and tax rate, boosting its net profit. Also, analysts expect the company’s EPS to rise 61.1% YoY to $0.19 this year. In comparison, they expect Cronos’s EPS to increase by 1,186% YoY.

Stock performance

As of yesterday, CWEB stock was trading at $22.67, 15.4% lower than when the company released its second-quarter results. The company’s dismal second-quarter performance and weakness in the cannabis sector appear to have dragged down its stock. Despite the recent fall, CWEB stock has returned 49.4% year-to-date, surpassing peers and the broader equity market. This year, Cronos and Aphria have returned 8.8% and 13.9%, respectively. The S&P 500 has risen 15.9% year-to-date.

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