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What to Expect from OrganiGram’s Q3 Earnings

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After reporting impressive first-quarter earnings in January, OrganiGram Holdings (NASDAQ:OGI) disappointed investors with a weak second-quarter performance in April, which pulled the stock down. So far this year, the company has lost 35.7% of its stock value. OrganiGram has underperformed cannabis ETFs and its peers. During the same period, the ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 22.5%.

OrganiGram will likely report its third-quarter earnings before the market opens on July 21. Overall, there isn’t much hope. The company’s management already announced that its third-quarter revenues could be lower than the second quarter due to a significant decline in its wholesale revenues. Let’s look at analysts’ expectations for the quarter.

Analysts’ expectations for OrganiGram

Analysts expect OrganiGram to report revenues of 22.2 million Canadian dollars in the third quarter. The amount represents a decline of 10.2% from 24.8 million in the same quarter of the previous year. Due to Aurora Cannabis (NYSE:ACB) and HEXO’s (TSE:HEXO) entry in the value product segment, OrganiGram could lose some of its market share in the segment. Also, the decline in the company’s wholesale revenue could drag its revenue down. Meanwhile, the company has expanded its Cannabis 2.0 portfolio by introducing an innovative line-up of vape pens and cannabis-infused chocolate during the quarter. These innovative Cannabis 2.0 products could offset some of the declines.

Moving to the adjusted EBITDA, analysts expect OrganiGram to report a loss of 0.3 million Canadian dollars during the quarter. The amount is an improvement from a loss of 1.1 million Canadian dollars in the second quarter. The company’s management said that its SG&A expenses could fall during the quarter. So, the decline in SG&A expenses could lower the company’s EBITDA loss.

Meanwhile, OrganiGram’s management will lower the production capacity at its Moncton facility to better align its production with the existing demand. Due to these changes, the company’s management expects to report impairment charges during the quarter.

Analysts’ recommendations for OrganiGram

So far this month, Jefferies lowered its target price from 5.0 Canadian dollars to 4.5 Canadian dollars. Haywood Securities cut its target price from 4.25 Canadian dollars to 3.50 Canadian dollars. However, Alliance Global Partner initiated its coverage on the stock with a “buy” rating and a target price of 4.0 Canadian dollars. On June 29, Raymond James, who was bullish on OrganiGram, downgraded the stock to a “market perform” rating and lowered its target price to 5 Canadian dollars. Read Why Did Raymond James Downgrade OrganiGram? to learn more.

Overall, 12 analysts cover OrganiGram. Among the 12 analysts, 75% recommend a “buy,” while 25% recommend a “hold.” None of the analysts recommend a “sell.” As of Tuesday, analysts’ consensus target price was 4.47 Canadian dollars. The target price represents a 12-month return potential of 118.2%.

My take

Earlier, I was bullish on OrganiGram. There has been a high unemployment rate due to the pandemic-infused lockdown. Customers’ preferences have shifted towards value products. I think that OrganiGram had an advantage. The company’s cash cost of production was one of the lowest in the industry at 0.53 Canadian dollars per gram. However, the company’s recent announcement was a little disappointing. So, I think that investors should wait until OrganiGram announces its third-quarter earnings to make an investment decision.

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