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Will Curaleaf Beat Analysts’ Expectations in Q4?


Mar. 20 2020, Published 11:55 a.m. ET

Curaleaf Holdings (OTCMKTS:CURLF) will report its fourth-quarter earnings after the market closes on March 24. As of March 19, the company was trading at 3.83 Canadian dollars—a fall of 47.5% since it reported its third-quarter earnings on November 19. In the third quarter, the company beat analysts’ expectations. The strong third-quarter performance and acquisition of Acres Cannabis and Select brand led to a rise in the company’s stock price. However, weakness in the cannabis sector and a fall in the broader equity market dragged the stock down. Pricing pressure, lower-than-expected demand, and the thriving black market are a drag on the cannabis sector. Meanwhile, the coronavirus has caused havoc in the financial markets across the world.

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Meanwhile, Curaleaf has underperformed the cannabis ETFs this year. YTD, Curaleaf has declined by 53.2%. Meanwhile, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have fallen by 43.6% and 40.2% during the same period, respectively. MedMen Enterprises (OTCMKTS:MMNFF), Cresco Labs (OTCMKTS:CRLBF), and OrganiGram Holdings have fallen by 70.7%, 64.8%, and 30.7%, respectively. Let’s look at analysts’ expectations for the fourth quarter.

Curaleaf’s revenue to rise in Q4

For the fourth quarter, analysts expect Curaleaf to report revenue of $77.5 million—sequential growth of 142.4% from $61.8 million in the third quarter. We expect the company’s investment to increase its cultivation capacity, expand its distribution network, and growth in recreational cannabis to drive its revenue. Meanwhile, Curaleaf’s management has set a pro forma revenue target of $1 billion for fiscal 2020 with a pro forma EBITDA margin of 30%. Curaleaf completed the acquisition of Acres Cannabis and Select brand earlier this year. The company is also working to close the acquisition of Grassroots. These acquisitions could drive the company’s revenue in fiscal 2020.

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Curaleaf’s EBITDA to improve

In the last quarter, Curaleaf managed to report a positive EBITDA. Until now, very few cannabis companies have become profitable. Analysts expect the company’s EBITDA to rise more this quarter. They expect the company to report an adjusted EBITDA of $12.7 million in the fourth quarter—a rise of 40.9% from $9.02 million in the third quarter. The revenue growth and decline in operating expenses could drive the company’s EBITDA.

Analysts’ recommendations

Analysts are bullish on Curaleaf. Among the ten analysts, nine recommend a “buy,” while one recommends a “hold.” None of the analysts recommend a “sell.” As of Thursday, analysts’ 12-month target price is 15.72 Canadian dollars. The target price represents a 12-month return potential of 310.4% from the closing price on Thursday. To learn more, read Analysts Recommend a ‘Buy’ for Curaleaf before Its Q4 Earnings.

Currently, only 33 states have legalized medical marijuana, while 11 states have legalized marijuana for recreational purposes. Meanwhile, many states are working to legalize marijuana for medical and recreational purposes. Cannabis legalization provides scope for Curaleaf to expand its business. Also, the acquisition of Acres, Select, and Grassroots could significantly expand its operations to 19 of the most attractive marijuana markets. So, I’m optimistic about Curaleaf. I think that investors should utilize the fall to accumulate the stock.


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