As of April 29, Cronos Group (NASDAQ:CRON) was trading at 8.63 Canadian dollars. The amount represents a fall of 4.3% since the company reported its fourth-quarter earnings on March 30. During the quarter, the company missed analysts’ revenue expectations. Also, the adjusted EBITDA losses were higher than expected. The weak fourth-quarter performance and the company’s decision to pause the distribution of its hemp-derived CBD tincture product, PEACE+, in the US led to a fall in the stock price. Following the stock declines, let’s look at analysts’ recommendations for Cronos Group.
Analysts’ ratings for Cronos Group
Overall, analysts have given Cronos Group a “hold” rating. As of Wednesday, 13 analysts covered the stock. Among the analysts, 69.2% recommend a “hold,” 15.4% recommend a “buy,” and 15.4% recommend a “sell.” Since Cronos Group reported its fourth-quarter earnings, three analysts downgraded the stock from “buy” to “hold,” while one analyst downgraded the stock from “hold” to “sell.” On April 26, Raymond James downgraded the stock from “outperform” to “market perform.” Earlier, PI Financial cut its rating from “buy” to “hold,” while Canaccord Genuity downgraded the stock from “sell” to “hold.”
Analysts’ target price for Cronos Group
As of April 30, analysts’ consensus target price for Cronos Group was 8.46 Canadian dollars. The target price represents a fall of 1.9% from the current stock price. Since the company reported its fourth-quarter earnings, Jefferies, Cowen, CIBC, PI Financial, Canaccord Genuity, and Raymond James have all lowered their target prices. The price cuts have lowered the company’s consensus target price from 11.34 Canadian dollars in the last month to 8.46 Canadian dollars.
From the above graph, you can see that analysts’ consensus target price has been falling since August. The lower-than-expected performance in the last three quarters of 2019 and weakness in the cannabis sector prompted analysts to cut their target prices. Meanwhile, the lower-than-expected demand for Cannabis 2.0 products, vaping-related deaths, and higher-than-expected operating losses have been a drag on the sector.
In the fourth-quarter earnings call, Cronos Group’s management announced that it will pause the distribution of its PEACE+ products in the US in association with Altria Group (NYSE:MO). Rahul Sarugaser of Raymond James downgraded the stock due to the company’s decision to pause the distribution of its PEACE+ products in the US, as reported by Cantech Letter. Earlier, Sarugaser was bullish on the stock. He expected Cronos Group’s Peace+ sales to rise with support from Altria’s network.
After the latest development, Sarugaser revised the estimates to only include sales from medical and recreational cannabis products in Canada and the sales of its Lord Jones brand in the US. He raised the revenue forecast from 50 million Canadian dollars to 72 million Canadian dollars. However, Sarugaser raised his EBITDA loss expectations from 2 million Canadian dollars to 93 Canadian dollars.
Despite the downgrade, Sarugaser still considers Cronos Group to be a relatively safe and defensive bet in the Canadian cannabis sector due to its strong cash position, as reported by Cantech Letter. Also, he thinks that if the company resets its US strategies and relaunches its Peace+ brand in 2021, he might hike the target price.
Analysts’ recommendations for peers
- Analysts favor a “hold” rating for Canopy Growth (NYSE:CGC). Among the 21 analysts, 47.6% recommend a “buy” rating, while the remaining 52.4% recommend a “hold” rating. As of April 29, analysts’ consensus target price was 29.13 Canadian dollars with a 12-month return potential of 23.2%.
- Analysts favor a “sell” rating for HEXO (TSE:HEXO). Among the 17 analysts, 52.9% recommend a “sell” rating, 41.2% recommend a “hold” rating, and 5.9% recommend a “buy” rating. Analysts’ consensus target price is 1.29 Candian dollars with a 12-month return potential of 81.1%.
- Analysts favor a “buy” rating for Aphria (NYSE:APHA). Among the 14 analysts, 78.6% recommend a “buy” rating, while 21.4% recommend a “hold” rating. Analysts’ consensus target price is 8.16 Canadian dollars with a 12-month return potential of 60.6%.
Cronos Group’s stock performance in 2020
So far in 2020, Cronos Group has lost 13.4% of its stock value. Weakness in the cannabis stock and a lower-than-expected performance in the fourth quarter led to a fall in the company’s stock price. Despite the fall, the company has outperformed its peers and cannabis ETFs. During the same period, Aphria, HEXO, and Canopy Group have fallen by 25.1%, 65.7%, and 13.4%, respectively. The ETFMG Alternative Harvest ETF has declined by 27.3% YTD.
Most of the cannabis companies struggle with their cash positions and rising debt levels. Cronos Group has 1.2 billion Canadian dollars in cash and cash equivalents. In December 2019, the company launched its cannabis vaporizer devices under the COVE and Spinach brands. In the fourth quarter, the company expanded its sales to the cannabis control authorities located in Alberta, Manitoba, and Quebec. Along with these factors, Cronos Group has support from Altria Group. So, I think that investors with a long-term horizon should look to accumulate the stock on every dip.