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Cronos Group: Wall Street Is Bearish after Its Earnings

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Cronos Group (NASDAQ:CRON) disappointed investors with its fourth-quarter results on March 30. The company’s revenue for the quarter was way below analysts’ estimates. Meanwhile, the EBITDA losses were higher than expected. Cronos Group stock fell by 10.5% and closed at $5.67 on the NASDAQ. The stock fell by 11.4% and closed at 7.99 Canadian dollars on the Toronto stock exchange. Let us take a look at how analysts view the stock after its earnings.

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Cronos Group’s disappointing Q4 results

Cronos Group’s operating losses were higher in the fourth quarter due to an increase in SG&A expenses, sales and marketing expenses, other one-time charges, and inventory write-down charges. The company reported an EBITDA loss of 83.2 million Canadian dollars.

Cronos Group’s management said that the company is prepared with its Cannabis 2.0 vape products. Uncertainty due to the pandemic makes it difficult to determine how the revenue growth will be for fiscal 2020. Currently, marijuana sales are rising. Will the increase be sustainable? Since the coronavirus targets the lungs, individuals are advised not to vape. As a result, there might be less demand for vaping devices.

Analysts’ view

After Cronos Group’s disappointing results, Canaccord Genuity downgraded the stock to “sell’ from “hold.” The firm reduced the target price for Cronos Group to 7 Canadian dollars from 12 Canadian dollars. PI Financial also downgraded the stock to “neutral” from “buy” and cut the target price to 9 Canadian dollars from 17 Canadian dollars. CIBC cut the target price to $8.5 from $12.85. CIBC and Canaccord Genuity also cut the target price for Hexo (TSE:HEXO) after it announced dismal second-quarter results.

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The number of analysts covering Cronos Group stock stayed the same after its earnings. Currently, 13 analysts cover the stock. Among the analysts, seven recommend a “hold,” three recommend a “buy,” one recommends a “strong-buy,” and two recommend a “strong sell.” The average target price for the stock fell to 10.27 Canadian dollars from 11.46 Canadian dollars before the earnings. The target price represents an upside potential of 29% from Tuesday’s closing price of 7.99 Canadian dollars.

Cronos Group’s stock performance

A sudden spike in cannabis sales kicked off cannabis stocks’ performance for the last two weeks. However, Hexo and Crono Group’s results painted a bleak picture of the cannabis industry. MedMen also withdrew its guidance amid the COVID-19 outbreak. To learn more, read MedMen Withdrew Its Guidance amid COVID-19 Pandemic.

Even though cannabis sales are rising, we don’t know how COVID-19 will impact the sector. Also, we don’t know when the pandemic will end. The coronavirus could impact recreational cannabis sales in the long run. Some states only allowed medical dispensaries to stay open in the US.

Analysts hoped that Cannabis 2.0 sales would drive marijuana companies’ revenue and profitability growth this year. Cannabis 2.0 sales could boost the industry after the pandemic ends. Right now, I think that cannabis stocks are a “hold” due to the volatility. However, companies like Cronos Group, Hexo, Canopy Growth (NYSE:CGC)(TSE:WEED), and Aphria (NYSE:APHA) have the capacity to turn things around. On Tuesday, Cronos Group fell 11.4%, while Hexo rose 5.9%. Canopy Growth stock and Aphria stock fell by 0.28% and 0.65% on the same day.

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