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Haywood Capital Markets Reduced OrganiGram’s Target Price

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OrganiGram Holdings (NASDAQ:OGI) stock is trading higher before its third-quarter earnings. The stock closed with a gain of 3.9% at $1.58 on Wednesday. However, the stock is down 2.4% in July. Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC), and Hexo have gained 4.8%, 10.2%, and 1.3% in July. OrganiGram will likely report its third-quarter earnings on July 21. Recently, many analysts reduced the stock’s target price. Haywood Capital Markets cut its target price but kept the “buy” rating intact. 

Why Haywood Capital Markets cut OrganiGram’s target price

Cantech Letter discussed Haywood Capital Markets analyst Neal Gilmer’s view on OrganiGram. Gilmer lowered his third-quarter estimates for the company due to uncertainties amid the COVID-19 pandemic. He expects OrganiGram’s revenue to be around 20 million Canadian dollars, which is lower than the consensus of 22.2 million Canadian dollars. The analyst also expects an EBITDA loss of 1.1 million Canadian dollars.

Gilmer lowered the target price for the stock to 3.5 Canadian dollars from 4.25 Canadian dollars and reiterated his “buy” rating. For fiscal 2020, the analyst expects OrganiGram’s net revenue and adjusted EBITDA to be 92.2 million Canadian dollars and 5.0 million Canadian dollars. For fiscal 2021, he expects the net revenue and adjusted EBITDA to be 59.4 million Canadian dollars and 49.1 million Canadian dollars, respectively.

Gilmer said, “We believe that Organigram is well-positioned for a re-rating within the cannabis sector. Following the addition of Greg Engel as CEO, the Company has added to its management and operations teams, successfully executed on its expansion plan, and secured provincial supply agreements with all ten provinces.”

Analysts’ recommendations for OGI

Besides Haywood, Jefferies and Alliance Global Partners also reduced OrganiGram’s target price. Jefferies cut its target price to 4.5 Canadian dollars from 5 Canadian dollars. Meanwhile, Alliance initiated coverage on OrganiGram with a target price of 4 Canadian dollars and a “buy” rating. Despite reducing the target price, analysts seem bullish on the stock. Among the 16 analysts that cover the stock, eight recommend a “buy,” four recommend a “strong-buy,” and four recommend a “hold.” The consensus target price on the stock is 4.47 Canadian dollars. The target price shows that the stock has a 107% upside potential from its closing price on July 15. OrganiGram stock closed at 2.16 Canadian dollars on Wednesday.

What to expect from OrganiGram’s Q3 results 

Analysts expect a 10.2% YoY decline in OrganiGram’s revenue to 22.2 million Canadian dollars. Sequentially, the amount is a slight fall from 23.2 million Canadian dollars in the second quarter. Analysts expect the company’s revenue to rise to 26.7 million Canadian dollars in the fourth quarter. For the fiscal year, OrganiGram could report revenue growth of 23.2% YoY to 99.1 million Canadian dollars.

Analysts hope that OrganiGram could see increased revenue in fiscal 2021. The company could also report an EBITDA loss of 0.26 million Canadian dollars in the third quarter. Analysts hope that OrganiGram could report an EBITDA profit of 2.1 million in the fourth quarter. For fiscal 2020, the company might report an EBITDA profit of 5.7 million Canadian dollars. The profits could rise more in fiscal 2021.

Cronos Group (NASDAQ:CRON) and Curaleaf (OTCMKTS:CURLF) could also report their earnings this month. Analysts expect Cronos Group to report a 17.4% YoY increase in its revenue to $8.9 billion. However, the company could report an EBITDA loss of $22.8 billion in the second quarter. US cannabis companies have been doing well this year. Curaleaf might report another strong quarter. Analysts expect the company’s revenue to rise to $108.8 million from $48.4 million in the second quarter of 2019. Curaleaf might report another quarter of positive EBITDA, which could be around $17.5 million.

What do I think?

I have favored OrganiGram due to its growth strategies. Gilmer thinks that OrganiGram is poised for long-term growth, especially when the Ontario market grows, due to its broad product portfolio. Ontario was supposed to issue new licenses this year for new store openings. However, the pandemic caused delays. I think that the situation will get better. With more legal stores, OrganiGram and other Canadian cannabis companies could benefit. Recently, OrganiGram reduced its workforce, which made investors skeptical. If you look at the long-term potential, OrganiGram could still benefit from Cannabis 2.0 products.

Stay with us to see how cannabis companies performed in their recent quarters.

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