Why Curaleaf Is a ‘Buy’ before Its Q1 Earnings


May. 15 2020, Published 7:40 a.m. ET

Amid the global sell-off due to COVID-19, Curaleaf Holdings (OTCMKTS:CURLF) fell to a low of 3.72 Canadian dollars on March 18. However, the company has made a significant recovery from those lows. As of May 14, the company was trading at 7.40 Canadian dollars, which represents a rise of 98.9%. The company’s stock price rose due to its plan to expand its footprint in Oklahoma and Connecticut, the closing of the acquisition of Arrow Alternative Care, and the announcement that CapStone Holdings has invested $50 million in the company. Also, stronger broader equity markets due to various stimulus packages contributed to a rise in the company’s stock price.

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Despite its recent surge, Curaleaf is still trading 48.5% lower than its 52-week high of 14.37 Canadian dollars. Meanwhile, the company will likely report its first-quarter earnings on May 18 after the market closes. So, should you buy the stock before its first-quarter earnings? First, let’s look at analysts’ expectations.

Curaleaf’s revenue could rise in Q1

For the first quarter, analysts expect Curaleaf to report revenue of $98.4 million. The amount represents a rise of 179.1% from the first quarter of 2019 and 30.4% sequentially. Many states declared that cannabis is an essential item. Also, stockpiling before social distancing guidelines came into effect might boost the company’s sales during the quarter. Curaleaf completed the acquisition of Acres Cannabis and the Select brand during the quarter. The company’s revenue might increase due to acquisitions and its investment to increase its cultivation capacity and expand its distribution network. The growth in recreational cannabis could also boost Curaleaf’s revenue. Meanwhile, the company wants to complete its acquisition of Grassroots. The acquisition could boost Curaleaf’s Midwestern markets like Illinois, Ohio, Arkansas, and North Dakota.

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Analysts expect Curaleaf’s EBITDA to rise

Analysts expect Curaleaf’s EBITDA to rise during the quarter. They expect the company to report an EBITDA of $15.7 million. The amount represents an improvement of 13.3% from $13.8 million in the fourth quarter of 2019. Meanwhile, in the first quarter of 2019, the company reported a negative EBITDA of $4.7 million. The revenue growth and improved gross margin could boost the company’s EBITDA. Compared to the fourth quarter of 2019, Curaleaf’s gross margin could improve from 52.9% to 53.6%. Meanwhile, the company’s operating expenses could fall from $52.6 million to $46.2 million.

Analysts’ recommendations

Analysts favor a “buy” rating for Curaleaf. Among the ten analysts, nine recommend a “buy,” while one recommends a “hold.” None of the analysts recommend a “sell.” As of May 12, analysts’ consensus target price was 14.38 Canadian dollars, which represents a 12-month return potential of 94.3%. Although Curaleaf reported a better-than-expected fourth-quarter performance, Alliance Global Partners and Canaccord Genuity lowered their target prices. To learn more, read Analysts Cut Curaleaf’s Target Price after Its Q4 Earnings.

YTD stock performance

Despite Curaleaf’s recent surge, it still trades 9.5% lower YTD. However, the company has outperformed its peers and cannabis ETFs. During the same period, Cresco Labs (OTCMKTS:CRLBF), Charlotte’s Web Holdings (NYSEARCA:CWEB), and MedMen Enterprises (OTCMKTS:MMNFF) have fallen by 41.3%, 42.6%, and 68.6%, respectively. Meanwhile, the ETFMG Alternative Harvest ETF (NYSE:MJ) has fallen by 35.2% YTD.

With more states opening up to marijuana, the cannabis market in the US should keep rising. Curaleaf is also making strategically important acquisitions to expand its footprint across the US. With the acquisitions, Curaleaf is well equipped to capture the growing US cannabis market. In the last two quarters, the company outperformed analysts’ EBITDA expectations. So, I think that investors should acquire the stock ahead of its earnings.


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