Last Thursday, Raymond James’ increased their 12-month price target on Village Farms (TSX: VFF) (NASDAQ: VFF) from C$20 to C$26 and reiterated their strong buy rating on Village. Rahul Sarugaser, Raymond James’ analyst headlines “Raising TP to $26 | Welcome to the Big Five | Fortified Balance Sheet, U.S. Option.”
Village Farms currently has six analysts covering the company with a weighted 12-month price target of C$6.06. This is up from the average last month, which was C$19.62. One analyst has a strong buy rating while another five have buy ratings.
Sarugaser says that his price target increase comes from a recent run-up in valuations. He writes, “We do note that much of this share price escalation has been driven by the recent run-up in the cannabis sector more broadly.” Raymond James believes that Village Farms is the best Canadian operator with some sort of U.S option to play with their texas greenhouse. Most notable, this price target increase does not include a revenue or EBITDA increase.
Sarugaser says that the recent dilution/capital raise for US$135 million is positive in his view for multiple reasons.
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The first reason is that with the Aphria/Tilray merger, Village Farms has now entered the top 5 by enterprise value. The list goes as followed: Canopy, Aphria/Tilray, Cronos, Aurora, then Village Farms. Sarugaser says that all but Aurora (which now since has joined this group) has over C$200 million in cash on their balance sheets, which provides them with “durability and optionality in the fast-evolving cannabis sector.”
The second reason is the 2.2 million square feet of potential cannabis cultivation located in Texas, which currently grows fresh produce. Sarugaser writes, “with >C$200 mln on its balance sheet, the company now has the flexibility to undertake these conversions of Canadian and/or U.S. greenhouses when management believes the time is right.”
The final reason starts with Raymond James’ saying that Village Farms management has been “some of the best stewards of capital in the Canadian cannabis sector.” The Canadian adult-use market had a very strong 2020 and continues to grow. The current annualized market is now C$3.2 billion, and it’s estimated to grow to C$10 billion through 2025. Sarugaser forecasts that Village will capture a roughly 20% market share, up from the 8% they currently have today, by 2025.
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.
