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Why Beacon Securities Is Bullish on Curaleaf

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On Monday, Cantech Letter reported that Russell Stanley of Beacon Securities reiterated his “buy” rating for Curaleaf Holdings (OTCMKTS:CURLF). He gave a target price of 25 Canadian dollars, which implies a return potential of 178.7% from its closing price of 8.97 Canadian dollars on Tuesday.

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Why is Stanley bullish on Curaleaf?

On January 17, Curaleaf provided an update on its pending acquisition of Select, Grassroots, and ATG. In the press release, the company stated that Curleaf and Select are working with state regulators to get approval. The company expects to close the deal by February 1, 2020. Curaleaf expects the acquisition of Grassroots to close in the Spring of 2020. On the acquisition of ATG (Alternative Therapies Group), the company’s management stated that ATG filed the application with the Massachusetts Cannabis Control Commission to transfer the control. Overall, both of the companies are working to get the necessary approvals.

As reported by Cantech Letter, Stanley stated that even under the challenging capital market environment, Curaleaf stands out with its cash position. Earlier this month, the company closed a $300 million loan facility from a syndicate of lenders. Notably, Stanley expects the funding to fund not only its pending acquisitions and capex requirements but also future acquisitions.

Stanley expects the acquisition of Select to act as a near-term catalyst. According to him, Curaleaf trades at a discount compared to its peers. He said that Curaleaf trades at 5.8x his fiscal 2021 EBITDA estimates, while its US peers’ average was 7.6x. The company’s broader peer group average was 16.1x.

Also, Stanley expects Curaleaf to report an EBITDA of $360 million in fiscal 2020 on revenues of $1.2 billion from managed assets. For fiscal 2021, he expects the company to report an EBITDA of $899 million on revenues of $2.14 billion from managed assets.

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Analysts’ recommendations and estimates

Overall, analysts are bullish on Curaleaf. Among the eight analysts that cover the stock, seven recommend a “buy” rating, while one recommends a “hold” rating. Meanwhile, none of the analysts recommend a “sell” rating. As of Tuesday, analysts’ consensus was 16.24 Canadian dollars, which implies a 12-month return potential of 81.1%.

For fiscal 2019, analysts expect Curaleaf to report revenue of $233 million, which implies a YoY growth of 202.4%. They expect the company’s revenue to rise by 330.9% to $1.0 billion in fiscal 2020. On profitability, they expect the company to report an EBITDA of $24.4 million in fiscal 2019, which is an improvement from a negative EBITDA of $9.9 million in fiscal 2018. For fiscal 2020, they expect the company’s EBITDA to rise to $273.5 million.

Stock performance

After delivering a strong performance in 2019, Curaleaf has continued its upward momentum in 2020. In 2019, the stock rose by 26.6%. YTD, Curaleaf stock has increased by 9.7% as of Tuesday. Read Can Curaleaf Maintain Its Upward Momentum? to learn more. Meanwhile, MedMen Enterprises (OTCMKTS:MMNFF) and Cresco Labs (OTCMKTS:CRLBF) have lost 5.7% and 5.9% of their stock values, respectively. However, Charlotte’s Web Holdings (OTCMKTS:CWBHF) has returned 15.2%. The introduction of a new bill, which allows CBD to market as dietary supplements, drove the stock price.

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