So far, October has been tough for the cannabis sector. The ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) have lost 11.3% and 12.9% of their stock value, respectively. Cannabis stocks fell due to lower revenue growth expectations in the second half of 2019 and analysts downgrading several cannabis companies. On Monday, Seaport Global downgraded Hexo (HEXO) and Canopy Growth (CGC) (WEED). Earlier this month, BofA double-downgraded Hexo. Amid the negative sentiment, let’s look at analysts’ option on MedMen Enterprises (MMEN) (MMNFF).
MedMen stock fell
As of Monday, MedMen was trading at 1.58 Canadian dollars, which represents a fall of 18.6% this year. On October 8, the company announced the termination of its previously announced “Business Combination Agreement” with PharmaCann. Terminating the deal and weakness in the cannabis sector led to a fall in MedMen’s stock price.
Analysts’ target price
MedMen has received increased coverage in the last 12 months. As of Monday, eight analysts cover the stock compared to six in October 2018. In the above graph, you can see that there has been a gradual decline in the company’s target price since November 2018. As of Monday, MedMen’s consensus target price was 4.31 Canadian dollars compared to 9.04 Canadian dollars on November 14, 2018. The new target price implies a 12-month return potential of 172.6%.
On October 9, Canaccord Genuity lowered its target price from 6.75 Canadian dollars to 3.75 Canadian dollars. On August 14, Cormark Securities had cut its target price from 7.50 Canadian dollars to 6.50 Canadian dollars.
Analysts’ ratings for MedMen
Despite analysts lowering their target prices, they look bullish on the stock. Among the eight analysts, two recommend a “strong-buy,” three recommend a “buy,” two recommend a “hold,” and one recommends a “sell.” On September 13, Cowen and Company initiated its coverage on the stock with an “underperform” rating and a target price of 1.50 Canadian dollars.
Let’s look at analysts’ recommendations for MedMen’s peers:
- Among the 17 analysts that follow Aurora Cannabis, 47.1% recommend a “buy” rating. Read Aurora Cannabis: Analysts’ Target Price after Its Earnings to learn more about analysts’ ratings.
- Analysts look bullish on Hexo. Among the 16 analysts that cover the stock, 50% recommend a “buy.”
- Among the seven analysts that follow Curaleaf, 85.7% recommend a “buy,” while 14.3% recommend a “sell” rating.
YTD stock performance
MedMen has lost 59.0% of its stock value year-to-date as of Monday. Allegations of financial irregularities and the recent termination of the deal with PharmaCann caused the company’s stock price to fall. During the same period, Aurora Cannabis, Hexo, and Curaleaf have returned -28.3%, -28.9%, and 24.8%, respectively.
The abrupt resignation of its CFO, the double downgrade by BofA, and lower-than-expected fourth-quarter preliminary revenues contributed to a fall in Hexo’s stock price. The recent acquisition of Select and Grassroots Cannabis and an optimistic outlook from the company’s management for fiscal 2020 boosted Curaleaf’s stock price.
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