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Can OrganiGram Beat Analysts’ Expectations in Q1?

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OrganiGram Holdings (NASDAQ:OGI) will report its first-quarter earnings after the market closes today. Analysts expect the company to report revenue of 19.6 million Canadian dollars. The expectation represents sequential growth of 20.1% from 16.29 million Canadian dollars in the fourth quarter of fiscal 2019. We expect the increased production capacity and the expansion of product availability to drive the company’s revenue.

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Meanwhile, analysts expect OrganiGram to report a negative EBITDA of 1.46 Canadian dollars in the first quarter. The number is an improvement from a -7.9 million Canadian dollars in the fourth quarter of fiscal 2019. We expect the increased revenue, a higher gross margin, and lower operating expenses to drive the company’s EBITDA during the quarter.

OrganiGram’s performance in the last four quarters

OrganiGram missed analysts’ revenue expectations three times in the previous four quarters. In the last quarter, the company’s revenue came in at 16.29 million Canadian dollars. The revenue fell short of analysts’ expectations by 22.7%. The company’s management blamed the slower rate of new store openings and weak demand for cannabis products. OrganiGram’s management announced that it would suspend the construction of its Moncton campus until Canada expands its retail footprint.

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Moving to the EBITDA, OrganiGram also missed analysts’ expectations three times in the last four quarters. In the fourth quarter, the company reported a negative EBITDA of 7.9 million Canadian dollars. The EBITDA fell short of analysts’ expectation of 2.64 Canadian dollars. Lower gross profits and higher SG&A expenses dragged the company’s EBITDA down.

We expect OrganiGram to miss analysts’ consensus estimates in its first quarter. The result will likely be impacted by pricing pressure, an excess supply of cannabis products, and a lower number of stores in most populous provinces in Canada.

Analysts cut price targets ahead of OGI’s first-quarter earnings

Ahead of OrganiGram’s first-quarter earnings, three analysts have lowered their target prices. On January 10, CIBC lowered its target price from 9 Canadian dollars to 5 Canadian dollars. Earlier this month, Haywood Securities cut its target price from 7.50 Canadian dollars to 6.50 Canadian dollars. Jefferies lowered its target price from 8.2 Canadian dollars to 5 Canadian dollars.

On January 9, Cantech Letter reported that Raymond James downgraded the stock from “outperform” to “market perform.” However, Raymond James maintained its target price of 9 Canadian dollars. Rahul Sarugaser of Raymond James stated that headwinds in the Canadian cannabis market, like the slower rollout of retail stores, the delay in the introduction of Cannabis 2.0 products, and lower prices, would put pressure on OrganiGram in the first three quarters of fiscal 2020.

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Despite lower target prices, analysts are still bullish on OrganiGram. Among the 16 analysts that follow the company, 11 analysts recommend a “buy,” four recommend a “hold,” and one recommends a “sell.” As of Monday, analysts’ consensus target price was 6.28 Canadian dollars, which represents a 12-month return potential of 118.2%.

Stock performance

Since the beginning of 2019, OrganiGram has lost 40.5% of its stock value. The company’s stock price fell due to a weak performance in the fourth quarter, the fear of dilution from the recent equity offering, and weakness in the cannabis sector. During the same period, Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), Cronos Group (NASDAQ:CRON), and Aphria (NYSE:APHA) have fallen by 46.6%, 67.3%, 31.8%, and 9.6%, respectively.

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