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Canopy (CGC): Seaport Cuts Estimates, Reiterates Neutral on the Cannabis Stock

Based on what leading Canadian cannabis producers HEXO (HEXO) and Cronos (CRON) have been saying in recent earnings reports, Seaport analyst Brett Hundley seems to be concerned about inventory build and marketplace inefficiency. As a result, Hundley has taken a more conservative stance with his near-term view for Canopy (CGC), lowering near-term revenue and EBITDA expectations.

Specifically, Hundley has lowered his FQ4:19 (March) revenue forecast to $85.7MM, while his Q4 EBITDA estimate drops to a loss of $53.7MM, as he believes he was “being too conservative with G&A pacing, both in Q4 and in FY20.” For 2020, Hundley now expects revenue of $788.6MM next to EBITDA of $41.2MM.

“Against both our current model and a workup of what we view as normalized earnings for the company, we continue to view the present valuation on the shares as full. We incorporate the value of cash from Constellation into this view. We acknowledge here that CGC could deploy this cash in a manner that makes our forward model too conservative, adding potential upside against our current view,” Hundley concluded.

You can guess where this is going — Hundley reiterates a Neutral rating on Canopy stock, without suggesting a price target. (To watch Hundley’s track record, click here)

From mid-December to late January, CGC staged an impressive rally, going from $26 to $48. But since then, the bullishness has cooled off. The stock has essentially been in a trading range of $43 to $46, and some investors are concerned that recent weakness is a sign that the stock could be due for a repeat of late 2018.

Ultimately, the word on the Street points to a sidelined majority on Canopy. In the last three months, the cannabis stock has landed 4 ‘buy’ ratings vs. 5 ‘hold’ ratings. It’s clear that Wall Street is largely divided between the bulls and the fence sitters when it comes to Canopy’s valuation. That said, the consensus average price target points to $50.63 (C$67.80), or nearly 17% upside potential for the stock. This suggests that by consensus expectations, for now, the bulls win on Canopy.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.


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