What to Expect from Cronos Group’s Q4 Earnings

Cronos Group (NASDAQ:CRON) will report its fourth-quarter earnings before the market opens on Thursday. For the quarter, analysts expect the company to report double-digit revenue growth sequentially. Also, they expect the company’s EBITDA to improve.

Cronos Group’s revenue to rise

For the fourth quarter, analysts expect Cronos Group to report revenues of 17.0 million Canadian dollars. The estimate represents 34.0% growth from 12.7 million Canadian dollars in the third quarter of 2019 and 203.8% growth from 5.6 million Canadian dollars in the fourth quarter of the previous year.

Cronos Group acquired Redwood Holding Group in September 2019. Redwood manufactures and sells CBD-based beauty products under the brand “Lord Jones.” We expect Redwood to leverage Altria Group’s (NYSE:MO) distribution network to expand its business. Also, the company launched a new CBD brand “PEACE+,” which is available in 1,000 US retail stores. In Canada, the company expanded its distribution network to Alberta. The company has its presence in six provinces, which cover approximately 70% of the Canadian population. Along with these initiatives, launching Cannabis 2.0 products in late December and growth in cannabis sales could drive the company’s revenue.

Meanwhile, Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) reported sequential revenue growth of 13.2% and 25.6%, respectively.

Cronos Group’s EBITDA will likely improve

Analysts expect Cronos Group to report a negative EBITDA of 20.6 million Canadian dollars. However, the estimate is an improvement from a negative EBITDA of 23.9 million Canadian dollars in the third quarter of 2019. They expect higher revenue, a higher gross margin, and lower SG&A expenses to improve the company’s adjusted EBITDA. Analysts expect Cronos Group’s gross margin to rise from 41.5% in the third quarter to 45.9%.

During the same quarter, Canopy Growth and Aurora Cannabis have reported a negative EBITDA of 92 million Canadian dollars and 80.2 million Canadian dollars, respectively.

Analysts’ recommendations

Among the 13 analysts that follow Cronos Group, five recommend a “buy,” seven recommend a “hold,” and one recommends a “sell.” Overall, analysts’ average target price is 12.00 Canadian dollars, which implies a 12-month return potential of 27.1%. Last week, Jason Zandberg of PI Financial reiterated his “buy” rating and target price of 17 Canadian dollars for Cronos Group. Read Why Is PI Financial Bullish on Cronos Group? to learn more. Last month, Jefferies lowered its target price from 10 Canadian dollars to 7 Canadian dollars.

Stock performance

As of February 21, Cronos Group was trading at 9.44 Canadian dollars, which represents a fall of 11.7% since the company reported its third-quarter earnings on November 12. The weak third-quarter performance and weakness in the cannabis sector led to a fall in the company’s stock price. Last year, Cronos Group had lost 30.7% of its stock value. So far, the company has fallen by 5.3% this year. In comparison, Aurora Cannabis and Aphria (NYSE:APHA) have fallen by 20.8% and 19.5%, respectively. However, Canopy Growth, which reported an impressive third-quarter performance on February 14, has returned 5.9%.