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Analysts’ Recommendations after Charlotte’s Web’s Q4 Earnings

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Charlotte’s Web Holdings (OTCMKTS:CWBHF) (NYSEARCA:CWEB) reported its fourth-quarter earnings on March 24. For the quarter, the company missed analysts’ revenue and EBITDA estimates. On March 23, the company announced that it will acquire Abacus Health for 99 million Canadian dollars in an all-cash deal. The acquisition could expand Charlotte’s Web’s market share in the F/D/M segment to 35%. So, the acquisition of Abacus Health might have impressed investors. As of March 27, Charlotte’s Web was trading at 6.38 Canadian dollars, which represents a rise of 25.1% since reporting its fourth-quarter earnings.

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Analysts’ lowered their target prices for Charlotte’s Web

Since Charlotte’s Web reported its fourth-quarter earnings, PI Financial and Eight Capital have lowered their target prices. On March 26, Cantech Letter reported that Jason Zandberg of PI Financial lowered his target price from 11.50 Canadian dollars to 10.00 Canadian dollars due to its disappointing fourth-quarter performance. However, he maintained his “buy” rating for the stock. On March 27, Eight Capital lowered its target price from 13 Canadian dollars to 9 Canadian dollars.

As of March 27, analysts’ consensus target price was $8.54. The target price represents a 12-month return potential of 92.3% from its closing price of $4.44 on March 27. Compared to February 27, analysts’ consensus target price has declined by 43.9% from $15.21.

Meanwhile, as of March 27, Cresco Labs (OTCMKTS:CRLBF), Curaleaf (OTCMKTS:CURLF), and OrganiGram Holdings (NASDAQ:OGI) were trading at a discount of 246.6%, 142.4%, and 113% from their respective price targets.

Analysts’ opinion

For the fourth quarter, Zandberg expected Charlotte’s Web to report revenue of $23.6 million with an EBITDA of $0.4 million, as reported by Cantech Letter. However, the company reported revenues of $22.8 million and a negative EBITDA of $10.2 million. Zandberg stated that competition in the CBD market lowered the company’s revenue growth. He also said that the lack of clarity on the regulatory front created confusion for customers. They can’t verify the quantity and quality of CBD in each of the products.

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Zandberg expects Charlotte’s Web to close the acquisition of Abacus Health in the third quarter of this fiscal year. He expects the acquisition to contribute $12.7 million of sales in the last two quarters of this fiscal year. For fiscal 2020, he expects the company to report revenue of $113 million, while its adjusted EBITDA could be -$16 million. Meanwhile, for fiscal 2021, he expects the company to report revenue and EBITDA of $169 million and $28 million, respectively. As reported by Cantech Letters, Zandberg added that his estimates don’t include any improvement on the regulatory front. However, he stated that any such positives from the FDA could provide an upside to his target.

Analysts’ ratings for Charlotte’s Web

There haven’t been any rating changes since Charlotte’s Web reported its fourth-quarter earnings. As of March 27, eight analysts follow the company. Among the analysts, six recommend a “buy,” while two recommend a “hold.” In the above graph, you can see that there has been a decline in analysts’ coverage. Last month, ten analysts covered the stock compared to eight analysts currently. Let’s look at analysts’ ratings for Charlotte’s Web’s peers.

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  • Analysts are bullish on Cresco Labs. All 12 of the analysts that follow the stock recommend a “buy.”
  • Among the 11 analysts that follow Curaleaf, ten recommend a “buy,” while one recommends a “hold.” To learn more, read Analysts Cut Curaleaf’s Target Price after Its Q4 Earnings.
  • Among the 16 analysts that follow OrganiGram, 12 recommend a “buy,” while four recommend a “hold.”

My take

In June 2019, Nielsen predicted that the US hemp-derived CBD market could reach $6 billion by 2025. With the recent acquisition of Abacus Health, Charlotte’s Web is well-positioned to acquire significant market share. Overall, I’m optimistic about the stock. Investors with a long-term perspective should utilize the recent fall in Charlotte’s Web’s stock price to accumulate the stock.

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