On March 16, Roth Capital initiated coverage on Innovative Industrial Properties (NYSE:IIPR) with a “buy” rating and a stock price of $110, as reported by The Fly. Scott Fortune of Roth Capital thinks that IIPR is well-positioned to facilitate cannabis companies with much-needed capital through its sale and leaseback strategy. He thinks that the company’s aggressive acquisitions could drive its adjusted funds from operations, net asset value, and dividends. Roth’s target price represents an upside potential of 93.4% for IIPR.
Last week, Craig-Hallum also started covering IIPR with a “hold” rating and a target price of $95. On February 28, Compass Point raised its 12-month target price for the stock to $150 from $130. As of Monday, analysts’ consensus target price was $126.50 with a 12-month return potential of 122.4%. Meanwhile, Wall Street favors a “buy” rating for the stock. Among the five analysts, three recommend a “buy” rating, while two recommend a “hold.” None of the analysts recommend a “sell.”
For 2020, analysts expect IIPR to report revenues of $114.1 million—155.5% growth from $44.7 million in 2019. Acquiring and leasing new properties could drive the company’s revenue. Analysts also expect the company to report an adjusted EPS of $4.07 in 2020—100.7% growth from $2.03 in 2019.
IIPR’s stock performance
Although Roth Capital gave a “buy” rating for IIPR, its stock fell 20.5% on Monday. The sell-off in the US broader equity market due to concerns about rising coronavirus cases across the world could have dragged the company’s stock down. After the fall on Monday, the company has lost 25.0% of its stock value this year. Despite the fall, IIPR has outperformed its peers and cannabis ETFs. The impressive fourth-quarter performance and aggressive acquisition might mitigate the effects of weakness in the cannabis sector.
During the same period, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have fallen by 44.3% and 42.7%, respectively. Meanwhile, Cresco Labs (OTCMKTS:CRLBF), Curaleaf Holdings (OTCMKTS:CURLF), and Charlotte’s Web Holdings have fallen by 63.8%, 41.3%, and 52.6% YTD, respectively.
My take on IIPR
Many cannabis companies require capital as they struggle to gain access to traditional sources. Currently, the federal government still prohibits cannabis. IIPR provides these companies with much-needed capital through its buy and leaseback strategies. So, the fall in cannabis prices and lower-than-expected demand for cannabis derivatives has a minimal impact on IIPR’s business. While most of the cannabis companies struggled to attain profitability, IIPR reported an adjusted EPS of $2.03 in 2019, which represents year-over-year growth of 170.7%. So, I’m bullish on IIPR. I expect the company to outperform its peers in 2020.