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Is This Cannabis Stock in Trouble? Jefferies Stays Bearish on Cronos (CRON)


Pot stocks have been rallying nicely since bottoming out in late 2018. Especially Cronos (CRON), which saw its shares skyrocketing nearly 90% YTD.

However, Cronos honeymoon with Wall Street appears to have been put on hold—for the moment, at least. CRON stock tumbled nearly 5% today in reaction to disappointing fourth-quarter results.

Jefferies analyst Owen Bennett says you shouldn’t be surprised as he reiterates an Underperform rating (i.e Sell) on CRON, along with a $17 price target, which implies about 13% downside from where the stock is currently trading. (To watch Bennett’s track record, click here)

Putting it into numbers, Q4 net revenues of C$5.6m were materially below the Street consensus of C$10.4 million. Misses were also reported on GM (44% vs. cons. 54%), EBITDA (-C$7.9m vs. cons. -C$2.1m) and EPS (-0.06 vs. cons. -0.02). Pricing was soft at C$5.39, with oil sales at a lower average price than flower due in part to absorption of excise tax.

Bennett commented, “Given the Cronos valuation these results not exactly inspiring. In our initiation [report] we argued near term delivery would likely disappoint, largely due to recreational weakness. Although Cronos did not split out recreational sales (the only coverage name not to do so), we estimate the recreational contribution in the quarter to be around C$2.3mn. Compare this to Canopy at C$59mn, Aurora at C $22mn, and even Hexo (which we are also cautious on) at C$15mn. With capacity remaining limiting (in our view), its main recreational brand still receiving muted reviews, and unclear derivative infrastructure, we struggle to see how sales will materially pick up throughout 2019.”

As always, we turn to TipRanks data to see how the Street perceives the stock. Ultimately, the word on the Street points to a sidelined majority on Cronos. In the last three months, the cannabis stock has landed 3 ‘buy’ ratings vs. 7 ‘hold’ and 2 ‘sell’ ratings. That said, the consensus average price target points to $22, or nearly 10% upside potential from current levels. This suggests that by consensus expectations, for now, the bulls still win on CRON stock. (See CRON’s price targets and analyst ratings on TipRanks)

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

 

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