Last night, Raymond James came out with their third quarter estimates for Village Farms (TSX: VFF) (NASDAQ: VFF) whom is anticipated to be reporting its results the week of November 10th. Raymond James currently has a $20 price target and an Outperform rating on the stock.
Rahul Sarugaser, Raymond James’ cannabis analyst, headlines the note, “+15% Rev., 8th Straight +EBITDA Q | 1Q21 Catalyst: Consolidating PSF Revenue.” Sarugaser says, based on their data, Village’s Pure Sunfarms is continuing to ramp up revenue as it has a roughly 40% market share in Ontario. Pure Sunfarms accounts for approximately 6% of all Canadian adult-use cannabis. With this in mind, Sarugaser is guiding Pure Sunfarms revenue to grow to $10.8 million.
Another critical metric Sarugaser points to is Pure Sunfarms “industry-leading cultivation costs.” Sunfarms’ all-in cost of goods sold is C$0.80 per gram, with the second place low cost producer sitting at C$1.40, which is nearly double theirs. Sarugaser says that this cost of goods sold will “drive an industry-best 8th consecutive EBITDA-positive quarter for VFF,” and that with the Canadian cannabis market growing, it puts Village in a great spot to gain market share and revenue growth further.
Sarugaser says, “VFF’s 3-month performance currently inline with the HMMJ Index, while—for the reasons outlined above—we expect VFF to break away from the pack,” and believes that currently only 82.8% of Pure Sunfarms revenue is attributed to Village during the third quarter, which moves to 100% for the first quarter of 2021. He says that “VFF beginning to consolidate its revenues with PSF in 1Q20 will be catalytic for the stock.”
Within the segmented forecasts, which are all in US dollars, Sarugaser believes that the third-quarter total revenue will be drop to $41.8 million. As both US Produce Revenue, and Canada Produce Revenue are expected to be down due to COVID-19. Raymond James is currently forecasting segment revenue to be $33.8 million and $7.8 million for the third quarter, respectively, down from $37 million and $10.5 million.
Finally, Sarugaser forecasts that Pure Sunfarms’ revenue will be $10.8 million, through the sale of 12,726 kilograms of cannabis, up from 10,365 last quarter. Their average selling price is estimated to have gone lower from $0.91 to $0.85, although this is partially offset by the all-in cost of goods sold going lower to $0.58 from $0.61.
The average selling price is forecasted to rebound in the fourth quarter to $1.00 and eventually go up to $1.15 at the end of 2021, while their cost of goods sold is estimated to go up to $0.67, but end up slightly higher at $0.63 by the end of 2021.
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.