Canopy Growth: Canaccord Reduces Target To $6, Anticipates Further Cost Cutting

Canopy Growth (TSX: WEED) is expected to report its fiscal fourth-quarter financial results tomorrow morning. The company is expected to report revenues of C$129 million. This is down from the C$139 million estimated 3 months ago. Analysts also expect the company’s net income to come in at -C$110 million.

For the full year, analysts expect revenues to come in at C$545 million, down from their consensus estimate 3 months ago of C$551 million.

There are currently 17 analysts covering Canopy Growth’s stock with an average 12-month price target of C$8.95, or an upside of 26%. Out of the 17 analysts, 1 has a buy rating, 10 analysts have a hold rating, 3 have sell ratings and the last 3 analysts have strong sell ratings on the stock. The street high price target sits at C$17 which represents a 140% upside to the current stock price.

Canaccord Genuity in a note lowered its 12-month price target to C$6 from C$10 and reiterated its sell rating on the stock. This comes after Canaccord updated their estimates on the name and believes that Canopy will continue to see revenue headwinds, while commenting that “further operational rightsizing could be in the cards.”

On the note, they believe that Canopy could potentially report a realignment of its “strategic priorities” during its results. They believe that this would make way for additional and sizeable cost-cutting initiatives.

For the fourth quarter, they expect Canopy to report net revenues of C$125.7 million, which would be a decline of almost 11% quarter over quarter. They expect Canopy to report lower sequential sales in all of it’s segments. For its Canadian adult-use segment, it expects revenues to be C$41.7 million, down 13% sequentially.

This is after Canopy reported an 18% sequential drop last quarter. They believe the sequential drop is primarily attributed to a slowdown in Canadian adult-use sales.

For Canadian medical sales, Canaccord expects revenues to be down modestly, going from C$12.9 million to C$12.3 million. While they expect international revenues to come in at C$17.6 million, down from C$22.3 million last quarter. They believe this drop is mainly due to COVID-19 headwinds, which impacted sales in January.

Lastly, other revenues are expected to come in at C$53.9 million, down from C$58 million as they expect that seasonality will be impacting this segment.

For gross margins, Canaccord is estimating gross margins of 16%, up from 13% last quarter, which is “well below levels that we believe will allow the company to eventually transition to profitability.”

Lastly, they say that Canopy currently trades at 4.4x their full-year 2022 estimates, which is still a massive premium to the Canadian LP average of 1.6x.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to the organizations discussed. 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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