uploads/2020/05/cronos-group-earnings-and-outlook.jpg

Cronos: Analysts Cut Target Price, Raymond James Still Bullish

By

Updated

Cronos Group (NASDAQ:CRON) reported its results for the first quarter of fiscal 2020 on May 8. The revenue growth was stronger in the first quarter, while the EBITDA losses continued. The surge in cannabis sales amid COVID-19 drove the revenue growth. The company ended the quarter with a strong balance sheet. Many analysts cut the target price for Cronos Group stock after the results. However, a Raymond James analyst has an optimistic view of the company.

Article continues below advertisement

Lower estimates for Cronos after Q1 earnings

Cronos Group had strong revenue growth in the first quarter. However, the company missed analysts’ estimates. After the results, many analysts reduced the revenue estimates for upcoming quarters. The lower estimates could also be due to uncertainty surrounding the pandemic. Most cannabis companies haven’t launched all of their Cannabis 2.0 products yet, which could drive the growth. Analysts expect revenue of 14.5 million Canadian dollars in the second quarter, 18.6 million Canadian dollars in the third quarter, and 21.6 million Canadian dollars in the fourth quarter.

Analysts reduced the fiscal 2020 revenue forecast from 87 million Canadian dollars before Cronos Group’s earnings to 64 million Canadian dollars. For fiscal 2021, analysts reduced the revenue estimate to 139 million Canadian dollars from 189 million Canadian dollars before the earnings.

Analysts also expect Cronos Group’s higher EBITDA losses to continue in upcoming quarters. The company could report a loss of 28.8 million Canadian dollars in the second quarter, 26.2 million Canadian dollars in the third quarter, and 25.3 million Canadian dollars in the fourth quarter. For fiscal 2020, analysts expect higher losses of 120 million Canadian dollars from 90 million Canadian dollars. Previously, analysts expected Cronos Group to report a positive EBITDA by fiscal 2022. Now, they expect another loss but lower at 2 million Canadian dollars in fiscal 2022.

Article continues below advertisement

Analysts cut the target price

Many analysts cut the target price for Cronos Group stock after the results. CIBC cut the target price to $8 from $8.5. Stifel also cut the target price to 7.5 Canadian dollars from 8 Canadian dollars. Meanwhile, Jefferies cut the target price to 6 Canadian dollars from 7 Canadian dollars.

Currently, 12 analysts cover Cronos Group stock compared to 13 before the earnings. Among the analysts, eight recommend a “hold,” two recommend a “buy,” and two recommend a “strong sell.” The average target price on the stock has been reduced to 7.88 Canadian dollars from 8.46 Canadian dollars, which implies a 12-month upside potential of 8%.

Tilray (NASDAQ:TLRY) reported its first-quarter results on Monday. The company’s net losses increased in the first quarter. Aurora Cannabis will likely report its third-quarter results on Thursday. To learn more, read Aurora Cannabis to Report Q1 Earnings, Stock Falls after Split.

Meanwhile, Tilray has a target price of $8.35 and an average “hold” rating. Aurora Cannabis (NYSE:ACB) stock also has an average “hold” rating. The stock has a target price of 19.37 Canadian dollars after the reverse stock split on May 11.

Raymond James is still bullish on Cronos

Raymond James analyst Rahul Sarugaser downgraded Cronos Group before its earnings. However, he still thinks that Cronos Group is a “safe and rare defensive play” with its strong balance sheet in the cannabis sector. After the results, the analyst maintained the “Sector Perform 3” rating and gave a target price of $6.5. Cronos Group missed analysts’ revenue estimate of $12.7 million. The company posted a negative EBITDA of $16.8 million in the first quarter. However, Sarugaser thinks that the company has the potential to drive its growth with innovative products. According to Cantech Letter, he said, “Looking at 1Q20 earnings this morning, we glance at the numbers—tepid revenue, some write-downs, a big gain from warrant revaluation — but fix our gaze firmly on the long- term investments CRON made early on (even before its alliance with Altria) that are beginning to bear fruit.”

Cronos Group fell by 1.7% on Tuesday, while Aurora Cannabis stock closed 12.8% lower. Tilray also closed 7.5% lower yesterday.

Advertisement

More From Market Realist