Much has been made of the struggling Canadian cannabis sector over the past 18 months. In contrast, the future looks bright for many of the emerging cannabis companies south of the border.
Curaleaf (CURLF), with a market cap of $7.1 billion, is currently the largest MSO (multi-state operator). The company reported Q3 earnings last week, and while Needham analyst Matt McGinley’s expectation for a “messy quarter” played out accordingly, the 5-star analyst believes Curaleaf is “still undervalued for a company with such strong growth prospects.”
Curaleaf reported Q3 revenue of $182.41 million, boasting year-over-year growth of 195% and a quarter-over-quarter increase of 55%.
McGinley believes “organic growth and dispensary openings in key states including FL, MA, AZ, and NY,” were key to the uptick and managed to offset “residual headwinds from COVID-19,” whose impact was most harshly felt in Q2.
However, the company didn’t manage to turn a profit with EPS coming in at -$0.01, while gross margins declined from 51.3% in Q2 to 50.6% in Q3.
That said, Curaleaf’s Q4 guidance is for $250 million in pro-forma revenue, and McGinley expects all metrics to “show improvement into 4Q with substantial improvement into ’21.”
Furthermore, the recent legalization of adult-use cannabis in Arizona and New Jersey and the possibility New York, Pennsylvania, and Connecticut might legalize adult use soon is particularly beneficial to Curaleaf as it is the only MSO with a strong presence in all these states.
As such, McGinley believes Curaleaf is well-positioned to benefit from a legal U.S. cannabis industry expected to grow from $13 billion in 2019 to $30 billion by 2024.
“Curaleaf is building a foundational asset base, and while there are many moving pieces, the picture for topline and EBITDA growth is becoming much clearer, in our view,” McGinley said. “Into ’21, we look for operational capacity in high growth markets to result in better revenue growth than peers, and with a balance sheet that could fund capex at 2-3x the ’20 rate, we find the setup for growth in ’22 and beyond quite strong.”
Accordingly, McGinley reiterates a Buy rating on CURLF shares along with a $14 price target. This figure implies a 29% upside from current levels. (To watch McGinley’s track record, click here)
The rest of the Street is just as bullish. Barring one Hold, all 6 other recent Curaleaf reviews rate the stock a Buy. The Strong Buy consensus rating is backed by a $14.25 average price target, implying 31% of share gains in the year ahead. (See Curaleaf stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.