Canada’s Canopy Growth Pops 12% On Blowout Quarter, Cost Cuts

Shares of Canopy Growth surged as much as 12% in Monday’s pre-market trading as the world’s biggest pot producer posted a better-than-feared quarterly loss and announced cost cuts.

On an adjusted basis, Canopy Growth (CGC) reported a loss before interest, taxation, depreciation and amortization of C$85.7 million for the three months ended Sept. 30, compared to a loss of C$150.4 million a year earlier. The Canadian cannabis company posted a loss of C$0.09 per share versus a loss of C$0.37 a share expected by analysts.

Net sales jumped to a record C$135.3 million from C$85.6 million in the year-ago period and blew past the Street’s estimates of C$118.1 million.

“We saw another quarter of improvement in our operating expense ratio while our marketing and R&D investments are being re-directed to drive sales,” commented Canopy Growth CFO Mike Lee. “Importantly, our end-to-end review has identified cost savings opportunities in the range of $150-$200 million across cost of goods sold, general and administrative expenses, and inventory, and efforts are underway to quickly capture value. Leveraging ongoing improvements across our business, we are accelerating our path to profitability, notably in our largest market, Canada.”

Shares in the Canadian cannabis company, which have surged 25% over the past 5 days, are currently trading up 11% year-to-date, and analysts have a relatively cautious perspective on the stock’s outlook.

Six Hold ratings and 2 Buy ratings add up to a Moderate Buy Street consensus, while the $18.37 average analyst price target indicates downside potential of 22% lies ahead.

Ahead of the earnings release, Canaccord Genuity analyst Matt Bottomley reiterated a Hold rating on the stock with a $16.90 price target, saying that “Canopy’s valuation is still lofty in relation to the current size of the Canadian market and the company’s pathway to profitability, which we believe is still >12 months out.”

“During the quarter, we continued to see strong provincial retail sales growth on the back of accelerated store openings and increased product breadth introduced throughout the sector (with national July and August sales up ~15% and ~6% MoM, respectively),” Bottomley wrote in a note to investors. “Furthermore, as COVID-19 case counts were reduced during the summer months, the impact of lockdowns is not expected to pose as much of a headwind compared to the prior quarter.” (Canopy Growth stock analysis).

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