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Nina Zdinjak

Cantor Fitzgerald Lowers Price Target On Curaleaf Stock Post Q3 Earnings

Curaleaf Holdings, Inc. (OTCQX:CURLFreleased its financial and operating results for the third quarter ended September 30, 2022, revealing total revenue increased by 7% to $340 million during the third quarter of 2022, compared to $317 million in the third quarter of 2021.

Gross profit was $153 million, compared to $182.7 million in the third quarter of 2021, while net loss amounted to $54.7 million, versus a net loss of $56.9 million in the corresponding quarter of last year.

Adjusted EBITDA was $84 million for the third quarter of 2022, compared to $71 million in the same period of 2021.

The company's year-over-year revenue growth primarily reflects continued growth driven by new retail store openings and the beginning of adult-use sales in New Jersey, the acquisition of Bloom Dispensaries, the addition of new wholesale partner accounts, product launches and expansion of cultivation and production facilities.

The Analyst

Cantor Fitzgerald’s analyst Pablo Zuanic kept an ‘Overweight’ rating on Curaleaf stock, lowering the price target to $13 from $13.50 per share.

The Thesis

The analyst lowered the price target to address reduced estimates.

Sales grew 1% sequentially, with one-offs estimated to have dragged sales by $3 to $4 million (Hurricane Ian in Florida, and delays in the opening of the Bordentown recreational store in New Jersey), said Zuanic.

“It says EBITDA margins in the core markets were 30%, but there was a 570 base point drag on margins from investment markets (one-third of that from international),” the analyst noted. “Net debt was stable seq at $401M million, and income tax payables increased by $30 million. Year-to-date operating cash flow of $71Mn compares with 9-month adj EBITDA of $243Mn (for only 29% conversion).

In the following months, the company could see profit from several actions, such as increased verticality across Pennsylvania, Illinois and Arizona, product mix, more premium flowers, and above-average growth in higher margin states like New Jersey, among others.

Furthermore, Curaleaf is guiding for $40 million in cost savings for 2023.

While the company is expecting recreational sales in Germany to begin in 2023 and to allow imports (at first from Canada), Zuanic believes that imports will not be allowed in the first phase and that recreational sales might not commence before 2025.

“We do not believe in the long term with interstate commerce, a broader scope of retailing, and even a 3-tier system, that small California brands will rule the world; in fact, we see the biggest and most profitable multi-state operators (with the right balance sheets) as best positioned to benefit in that future disruptive world. Curaleaf should be one of those, in our opinion,” Zuanic concluded.

The Price Action

Curaleaf shares closed Monday market session 3.43% lower at $5.35 per share.

Photo: Courtesy of John Miller from Pixabay


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