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Raymond James Downgraded Cronos before Its Q1 Earnings


May. 5 2020, Updated 8:28 a.m. ET

Cronos Group (NASDAQ:CRON) will likely report its results for the first quarter of fiscal 2020 on May 8 before the market opens. The first-quarter earnings come just a month after the company released its results for the fourth quarter of fiscal 2019 on March 30. Cronos delayed its fourth-quarter results. The company needed more time to complete its financial statements. Notably, the fourth-quarter results were a shipwreck. Since then, the stock started declining. So far, the stock has lost 8% as of May 4. Overall, the first-quarter expectations aren’t good either. A Raymond James analyst downgraded Cronos Group stock before its earnings.

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Analysts’ estimates for Cronos Group’s Q1 earnings

Analysts expect Cronos Group to report revenues of 13 million Canadian dollars—a growth of 103.1% YoY (year-over-year). Sequentially, the revenue could rise by 35.4% from 9.6 million Canadian dollars in the fourth quarter. Analysts expect Cronos’ revenue to rise slowly over the next few quarters. The revenue could rise to 16.8 million Canadian dollars in the second quarter, 20.5 million Canadian dollars in the third quarter, and 22.0 million Canadian dollars in the fourth quarter.

Analysts expect Cronos Group to report a negative EBITDA of 29.4 million Canadian dollars. Compared to the fourth quarter, the EBITDA loss is lower. The company reported a negative EBITDA of 83.2 million Canadian dollars. Higher SG&A expenses, which were driven by sales and marketing expenses, led to the rise in the EBITDA loss. Management also stated that the inventory write-down of $24 million caused the EBITDA losses.

Analysts expect Cronos to keep reporting an EBITDA loss for a while. The company could report a loss of 27.8 million Canadian dollars in the second quarter, 27.9 million Canadian dollars in the third quarter, and 27.1 million Canadian dollars in the fourth quarter.

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The losses could be due to Cronos Group’s decision to halt its CBD product distribution—especially the distribution of PEACE+ hemp-derived CBD tinctures. The company distributed the products through Altria’s network. CBD products in the US are still waiting for the FDA’s approval. Cronos wants to explore more product formats. Even though the company launched a variety of vape products, the vape market hasn’t recovered from the EVALI crisis. To add to the concerns, uncertainty amid COVID-19 makes analysts more skeptical.

Analysts expect Cronos Group’s gross margin to be around 47.8%—an increase from its gross margin in the third quarter.

Raymond James downgraded Cronos Group

Last week, a CanTech letter discussed that Raymond James analyst Rahul Sarugaser downgraded Cronos Group stock. He downgraded the stock from “Outperform 2” to “Market Perform 3.” He also reduced the target price from $10.50 to $6.50. Raymond James was skeptical due to Cronos Group’s decision to halt its US CBD product distribution. The analyst said, “In light of intense current market uncertainty and management shifts within Altria —adding complexity, potentially, to decisions relating to CRON’s use of Altria’s distribution network — we’ve decided to sharpen our pencils on this and have removed potential Peace+ revenues from our estimates entirely.”

Now, the analyst expects a fiscal 2020 revenue of $72 million and an EBITDA loss of $93 million. However, the analyst thinks that Cronos stock is still a “safe and rare defensive play” with its strong balance sheet in the cannabis sector.

Currently, 13 analysts cover Cronos Group stock. Among the analysts, nine recommend a “hold,” two recommend a “buy,” and two recommend a “strong sell.” The average target price on the stock is 8.46 Canadian dollars, which implies a 12-month upside potential of 3%.

Meanwhile, Canopy Growth (NYSE:CGC)(TSE:WEED) stock has a target price of 28.8 Canadian dollars and an average “hold” rating. Aurora Cannabis (NYSE:ACB) stock also has an average “hold” rating and a target price of 1.72 Canadian dollars.

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Cannabis players’ earnings this month

Three important cannabis companies will likely report their earnings this month. Besides Cronos Group, Aurora Cannabis and Canopy Growth will likely report their results this month. The cannabis sector’s stock performance largely depends on the outlook that these bigger players provide. Many analysts are still bullish about Cronos Group and Canopy Growth stock due to their partnerships with Altria (NYSE:MO) and Constellation Brands. However, Aurora Cannabis seems to be in a tight spot with its debt burden, lower profitability, and reverse stock split decision.

Analysts expect Aurora Cannabis to report revenue growth of 1.6% YoY to 66.2 million Canadian dollars in the third quarter of fiscal 2020. Analysts also expect Aurora Cannabis to report an EBITDA loss of 40.5 million Canadian dollars. The expectation is lower than EBITDA loss in the second quarter. Meanwhile, Canopy Growth could report revenue of 129.6 million Canadian dollars and an EBITDA loss of 87.5 million Canadian dollars in the fourth quarter of fiscal 2020.

In April, Cronos Group rose by 4.7%. Canopy Growth stock rose by 11.1%, while Aurora Cannabis fell by 17.7%, respectively.

Stay with us to learn more about how Cronos Group performed in the first quarter. Meanwhile, read Marijuana Investors: Forecast in May amid COVID-19 to learn what to expect from cannabis stocks in May.


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