Bank Of America Upgrades Canopy Growth’s Price Target To C$36 From C$30

Last week, Canopy Growth (TSX: WEED) (NASDAQ: CGC) reported its fiscal second quarter 2021 financial results. The company reported $135.3 million in revenue, up 77% year over year, a net loss of $96.6 million, and a free cash flow of ($190.4) million.

Bryan Spillane, BofA’s analyst, raised their 12-month price target to C$36 from C$30 and reiterated their buy rating following the results, citing, “We see mgmt. changes, right-sizing of operations and its enviable cash and share position as all reasons to believe that Canopy can be a LT leader in the cannabis sector.”

Spillane says that, “Performance metrics make some progress.” New products and better supply attainment levels grew to above 90% from 81% last quarter. He says that they had a, “Resilient performance during a pandemic with adj net sales +24% YoY.” While adjusted EBITDA loss narrowed to ($87) million and that Canopy is on track to improve to 40% gross margin over time.

Bryan Spillane lists his key takeaways from this quarter, which he separates into three different categories. The first one being “Momentum is building across key businesses,” as Canopy has grown its Canadian recreational sales 178% year over year, 15.5% market share in Canada, #1 market share in Germany, and #2 market share in Canadian medical. He also mentions the new product lines in the U.S markets.

The second takeaway he mentions is “Improving execution & agility.” He says that Canopy’s fill rate is consistently above 90% in Canadian recreational business to business with management’s goal being “at least 95%”. He also says Canopy has “made progress in its comprehensive flower quality improvement program,” and is “moving quickly to streamline its supply chain and operations.”

The last key takeaway is that Canopy is accelerating its path to profitability. Spillane says that Canopy’s gross margin grew from 7% to 19% this quarter, while selling, general, and admin costs are down 26% quarter over quarter, and management has said that they are finding additional saving opportunities in its COGS, G&A, and inventory.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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