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Canopy Growth’s Post-Earnings Targets and Ratings

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For the last few months, there’s been weakness in the cannabis sector. Investors were hoping for strong performances from Canopy Growth (CGC) (WEED) and Aurora Cannabis (ACB) to bring some relief.

However, Canopy Growth reported lower-than-expected second-quarter earnings yesterday. Its net revenue came in at 78.6 million Canadian dollars, missing analysts’ estimate by 36.3% and representing a sequential fall of 15.4% from 90.5 million Canadian dollars. The company incurred portfolio restructuring expenses of 32.7 million Canadian dollars in the second quarter, which negatively impacted its revenue.

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Canopy Growth also reported an operating loss of 155.7 million Canadian dollars, higher than analysts’ estimate of 93.28 million Canadian dollars. For more on Canopy’s second-quarter performance, read Canopy Growth Stock Falls after Weak Q2 Earnings. Its weak second-quarter revenue and higher operating loss led its stock to fall 14.3% yesterday. Let’s look at analysts’ opinions and their recommendations on Canopy Growth after its second-quarter earnings.

What are analysts saying?

Speaking about Canopy’s second-quarter performance, MKM Partners analyst Bill Kirk said, “This disappointing quarter, and with Canopy production levels still far greater than sell-through, becomes an industry issue that does not resolve quickly,” as reported by MarketWatch. On portfolio restructuring expenses, he said, “We do not consider this type of adjustment to be one-time, as it reflects returns and new pricing architecture and package assortment going forward.”

Bank of America Merrill Lynch analyst Christopher Carey stated that he was more concerned about the increase in Canopy Growth’s operating expenses and falling free cash flows than weak second-quarter sales numbers, as reported by Benzinga.

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The latest price target for Canopy Growth

After Canopy Growth reported its second-quarter earnings results, CIBC, PI Financials, and Piper Jaffray have all lowered their price targets. CIBC cut its price target from 45 Canadian dollars to 30 Canadian dollars. PI Financial dropped its price target from 35 Canadian dollars to 25 Canadian dollars, and Piper Jaffray reduced its price target from 36 Canadian dollars to 21 Canadian dollars.

In the graph above, we can see that analysts’ consensus price target has been falling since May. On November 14, analysts’ consensus price target for Canopy was 35.82 Canadian dollars, implying a 12-month potential return of 70.9%.

On the same day, peers Aurora Cannabis, Aphria (APHA), and Cronos Group (CRON) were trading at discounts of 67.0%, 113.6%, and 44.5%, respectively, to their price targets.

Analysts’ ratings for Canopy Growth

There were no analyst rating changes for Canopy Growth after it reported its second-quarter earnings. As of yesterday, 21 analysts covered the stock. Of these analysts, 42.9% favored “buys,” 52.4% favored “holds,” and 4.8% advocated “sells.” In the graph above, we can see that Canopy has received increased coverage in the last 12 months. In November 2018, only nine analysts covered the stock. Let’s look at analysts’ recommendations for Canopy’s peers:

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Stock performance this year

Canopy Growth has lost 42.7% of its stock value this year. Its worse-than-expected first- and second-quarter performances and the weakness in the cannabis sector appear to have dragged its stock down. Meanwhile, its peers Aurora, Aphria, and Cronos Group have fallen 35.4%, 25.7%, and 37.2% year-to-date, respectively. For more news and updates on the marijuana industry, be sure to check out 420 Investor Daily.

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