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Curaleaf: Analysts’ Recommendations after Its Q1 Earnings

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Earlier this week, Curaleaf Holdings (OTCMKTS:CURLF) reported its first-quarter earnings. For the quarter ended on March 31, the company missed analysts’ revenue expectations. However, the company reported a better-than-expected EBITDA and lower-than-expected net losses. Read Why Did Curaleaf Report a Mixed Q1 Performance? to learn more. Also, the company launched Nano Gummies under the Curaleaf and Select brands on Monday. Curaleaf added that the Select brand Nano Gummies will be available in Arizona’s Curaleaf dispensaries starting next week. Meanwhile, the company plans to expand the product to all eight states by the end of the second quarter.

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However, Curaleaf’s management lowered its guidance for the second quarter to $120 million from its earlier guidance of $128 million. Management blamed the temporary closure of stores in Nevada and Massachusetts for its lower sales guidance. The lower-than-expected sales and trimmed sales guidance led to a fall in the company’s stock price. Curaleaf has lost 0.5% of its stock value since it reported its first-quarter earnings. Let’s look at analysts’ recommendations.

Analysts’ target prices for Curaleaf

Compared to last month, analysts’ consensus target price has increased from 14.38 Canadian dollars to 14.53 Canadian dollars. The target price increase by 1.0% from last month. After Curaleaf reported its first-quarter earnings, Cowen raised its target price from 7 Canadian dollars to 8 Canadian dollars, which drove analysts’ consensus target price higher. The new target price represents a 12-month return potential of 75.5% from its stock price of 8.28 Canadian dollars. From the above graph, you can see that analysts’ consensus declined for the last three months before rising this month. Weakness in the cannabis sector appears to have prompted analysts to cut their target prices.

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Analysts’ ratings and their opinions

Analysts are still bullish on Curaleaf. Among the ten analysts that follow Curaleaf, nine recommend a “buy,” while one recommends a “hold.” None of the analysts recommend a “sell.”

Robert Fagan of Stifel GMP was impressed with Curaleaf’s first-quarter performance, as reported by Cantech Letter. He maintained his “buy” rating and a target price of 22 Canadian dollars for the stock. In the clients’ note, he said, “For three quarters now, CURA has proven its ability to expand sales alongside profitability, underpinning solid execution. In addition, CURA’s strong track record of M&A (no canceled deals) reassures us Grassroots will close, and perhaps sooner than some feared (now targeted end of Q2/20). With CURA’s market-leading platforms across a broad portfolio of high-growth states, ample cash of $176 million and strong propensity for M&A, we see a path to accelerating future growth.”

Let’s look at analysts’ recommendations for Curaleaf’s peers:

  • For Charlotte’s Web Holdings (NYSEARCA:CWEB), six of the eight analysts recommend a “buy,” while two recommend a “hold.” Analysts’ consensus target price for Charlotte’s Web is 11.47 Canadian dollars, which represents a 12-month return potential of 54.6%. Charlotte’s Web reported its earnings last week. To learn more, read Charlotte’s Web Reports Mixed Q1 Performance.
  • Among the seven analysts that follow MedMen Enterprises, five recommend a “hold,” while two recommend a “sell.” Analysts’ consensus target price is 0.81 Canadian dollars with a 12-month return potential of 107.4%.
  • For Cresco Labs (OTCMKTS:CRLBF), all 12 of the analysts that follow the stock recommend a “buy.” Analysts’ consensus target price is 14.04 Canadian dollars with a return potential of 145.1%.
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YTD stock performance and my take on Curaleaf

So far this year, Curaleaf has returned 1.2% as of May 21. The impressive fourth-quarter performance and its acquisition of Acres Cannabis and the Select brand led to a rise in the company’s stock price. Meanwhile, weakness in the cannabis sector has limited the company’s upside. The company has outperformed its peers and cannabis ETFs. Charlotte’s Web, MedMen, and Cresco Labs have fallen by 25.4%, 44.3%, and 29.2% YTD, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 21.3% during the same period.

The demand for medical and adult-use cannabis will likely rise as more states warm up to cannabis. Currently, only 11 states have legalized adult-use cannabis, while 33 states have allowed cannabis usage for medical purposes. So, there’s a huge opportunity for growth. Curaleaf’s recent acquisitions and new products mean that it’s well-positioned to capture market share in the growing US cannabis industry. So, I think that investors with long-term prospects and a higher appetite for risk should accumulate the stock.

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