OrganiGram’s First-Quarter Earnings: What to Expect

Yesterday, OrganiGram Holdings (NASDAQ:OGI) stock was trading at 2.68 Canadian dollars, 23.4% lower than when the company reported its fourth-quarter earnings on November 25. In the fourth quarter, OrganiGram’s revenue came in at 16.29 million Canadian dollars, missing analysts’ estimate by 22.8%. Management blamed slow new store openings and lower demand for the weak sales.

OrganiGram also announced it was temporarily suspending the final phase of construction of its Moncton campus until Canada expands its retail footprint. OrganiGram reported lower-than-expected EBITDA in the fourth quarter. Together, the weak Q4 performance, the expectation of dilution from its new equity program, and weakness in the cannabis sector appear to have dragged down the company’s stock.

OrganiGram is set to report its fiscal 2020 first-quarter earnings after markets close on January 14. Can those results bring relief to its stock? Let’s look at analysts’ expectations for the company in the first quarter.

Analysts expect OrganiGram’s revenue to rise

During OrganiGram’s fourth-quarter earnings call, the company said it expects to report a sequentially wider adjusted gross margin on higher revenue in the first quarter of fiscal 2020. Management stated it expects the company’s wholesale revenue to rise during the quarter, and its production costs to fall. Additionally, OrganiGram said it expects its inventory adjustments and write-offs to be flat sequentially.

In the first quarter, analysts expect OrganiGram to report revenue of 20.9 million Canadian dollars. That figure represents 67.6% year-over-year growth from 12.4 million Canadian dollars, and 28% sequential growth from 16.3 million Canadian dollars. The company is focusing on building brand equity, developing innovative products, and implementing best cultivation and manufacturing practices to drive growth. After receiving positive feedback from customers, the company has added its high-THC strain product, Limelight, to its core product portfolio. I expect the company’s increased production capacity and the expansion of its product availability to drive its revenue in the first quarter.

OrganiGram’s EBITDA to improve sequentially

In the fourth quarter, OrganiGram reported negative EBITDA of 7.9 million Canadian dollars. In the first quarter, analysts expect its EBITDA to improve to -0.4 million Canadian dollars. Therefore, I think the company’s improved revenue and gross margin and lower operating expenses could boost its EBITDA in the first quarter. However, pricing pressure, inventory adjustments, and write-offs could offset some of those benefits.

Progress of Cannabis 2.0 products

Last month, OrganiGram announced that Trailblazer Spark, Flicker, and Glow 510-thread Torch vape cartridges would be its first Cannabis 2.0 products. The company started shipping these products on December 17. It has partnered with PAX Labs and Feather to introduce vapes, which it expects to roll out this month across Canadian markets.

Last month, OrganiGram received approval for the facility where it plans to produce infused chocolates. That facility also has drying and storage areas. The company expects the commissioning of its chocolate production line to be completed this quarter. OrganiGram plans to introduce powdered beverage products in this year’s second quarter.

Analysts’ views and price targets

Ahead of OrganiGram’s first-quarter earnings release, Haywood Securities and Jefferies have lowered their price targets for its stock. On January 6, Haywood reduced its price target from 7.50 to 6.50 Canadian dollars. And on January 2, Jefferies cut its price target from 8.20 to 5 Canadian dollars. Analysts’ average estimate of 6.84 Canadian dollars implies a 155.2% return.

Analysts are bullish on OrganiGram. Of the 15 analysts tracking the stock, 12 suggest “buy,” three suggest “hold,” and none suggest “sell.”

Comparing OGI’s stock performance with peers’

Last year was tough for the cannabis sector. Mounting operating losses, thriving black market sales, slow new store openings, and vaping-related deaths dragged the sector down. The ETFMG Alternative Harvest ETF (NYSE:MJ) fell 31.4% last year, and OrganiGram fell 34.1%. Meanwhile, peers Charlotte’s Web Holdings (OTCMKTS:CWBHF) and Cresco Labs (OTCMKTS:CRLBF) fell 34.5% and 3.5%, respectively, and Curaleaf Holdings (OTCMKTS:CURLF) rose 26.6%. For more cannabis news, visit 420 Investor Daily.