On today’s Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), and five securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list. The share price has rallied 66 per cent year-to-date and the average 12-month target price implies there is an additional 29 per cent upside in the share price. The stock has a unanimous buy recommendation from 16 analysts who actively cover the company.
The security highlighted today is Green Thumb Industries Inc. (GTII-CN).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Green Thumb produces cannabis from 13 manufacturing plants located in the United States. The company derives its revenue from two main streams: 1) its Consumer Packaged Goods (CPG) business, where Green Thumb distributes its branded products to third-party licensed retail operators located in 10 U.S. States (California, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, Ohio and Pennsylvania) 2) its Retail business, where the company sells its products as well as third-party cannabis manufactured goods through its own cannabis stores, operating under the banners Rise and Essence, and also direct-to-consumer. The retail stores are located in 10 States (Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio and Pennsylvania).
Highlighted below are several attractive company characteristics.
· Growth: Management’s core objectives are summed up the company’s mission statement - “Enter, Open, and Scale.” Management aims to expand its footprint by entering new geographic regions. Opening new stores in another priority. As of June 30, the company had 48 retail stores with plans to expand their store count to between 50 and 55 stores by year-end. Lastly, management is focused on increasing its production and distribution capabilities. In July, the company completed the construction of a processing facility in Ohio. In the third-quarter, management expects to complete the expansion of three plants (two in Illinois and one in Pennsylvania), which will nearly double the company’s capacity in those markets.
· Solid financial results: On Aug. 12, the company reported its second quarter earnings. Revenue came in at $119.6-million, up 17 per cent sequentially, and up 168 per cent year-over-year. This handily beat the Street’s forecast of $104-million. Revenue for the first half of 2020 exceeded the company’s total revenue reported in 2019. The gross profit margin was 53 per cent in the second quarter. Adjusted operating EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $35.4-million, well above the consensus estimate of $23.4-million.
On the second-quarter earnings call, chairman and chief executive officer Ben Kovler remarked on the company’s record quarterly revenue, “Consumer demand for cannabis remains strong and the COVID crisis has accelerated its acceptance as a consumer staple.”
· Strong balance sheet: As at June 30, the company had cash and cash equivalents of $82.9-million. This provides the company with the financial flexibility to fund continued growth.
· Potential near-term catalysts: A Biden-Harris win in the upcoming U.S. Presidential election may spur speculation of federal legalization of marijuana, potentially giving a lift to cannabis stocks. Furthermore, in November, New Jersey residents cast their votes on whether or not to legalize recreational marijuana.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts' recommendations
There are 16 analysts that actively cover this marijuana stock, of which 14 analysts have buy recommendations and two analysts have ‘speculative buy’ recommendations.
The following U.S. and Canadian firms have provided recent research coverage on the company: Beacon Securities, Benchmark Company LLC, Canaccord Genuity, Cantor Fitzgerald, Cormark Securities, Cowan, Craig-Hallum Capital, Echelon Wealth Partners, Eight Capital, Haywood Securities, Ladenburg Thalmann & Co., Morningstar, Needham & Co., Piper Sandler & Co., Roth Capital Partners, and Stifel Canada.
Revised recommendations
After the company released its second quarter financial results on Aug. 12, numerous analysts revised their expectations – all higher. Listed below are several of these revised forecasts.
- Cormark’s Jesse Pytlak hiked his target price by $3 to $23.
- Canaccord’s Matt Bottomley increased his target price to $27 from $22.
- Haywood’s Neal Gilmer bumped his target price to $27 from $20.50.
- Stifel’s Andrew Partheniou lifted his target price to $42.50 from $34.
- Eight Capital’s Graeme Kreindler raised his target price to $26 from $24.
- Echelon’s Andrew Semple increased his target price to $25 from $21.
Financial forecasts
The consensus revenue estimates are US$504-million in 2020, up from US$216-million reported in 2019, US$739-million in 2021, and US$947-million in 2022. The Street anticipates EBITDA to come in at US$135-million in 2020, US$229-million in 2021, and US$315-million in 2022. The Street is forecasting earnings per share to come in at a loss of 2 US cents in 2020 but turn positive the following year. The consensus earnings per share estimates are 31 US cents in 2021 and 59 US cents in 2022.
The consensus revenue and EBITDA forecasts have been climbing higher. For instance, three months ago, the Street was forecasting revenue of US$459-million for 2020 and US$682-million for 2021. The consensus EBITDA estimates were US$115-million for 2020 and US$205-million for 2021.
Valuation
According to Bloomberg, the stock is trading an enterprise value (EV)-to-sales multiple of 4.7 times the 2021 consensus estimate, and at an EV/EBITDA multiple of 15.3 times the 2021 consensus estimate. At its peak, the stock traded at a forward EV/EBITDA multiple of nearly 25 times (in the first half of 2019), suggesting there is room for multiple expansion.
The average one-year target price is $27.45, implying the share price has 29-per-cent upside potential.
Insider transactions
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Chart watch
This cannabis stock is outperforming its industry peers. Year-to-date, Green Thumb’s share price is up 66 per cent, while shares of Aphria Inc. (APHA-T), Canopy Growth Corp. (WEED-T), Cronos Group Inc. (CRON-T), and Aurora Cannabis Inc. (ACB-T) all have negative year-to-date returns.
In terms of key resistance and support levels, the share price is currently sitting just below a major ceiling of resistance, which lies between $21.50 and $22. After that, the next major resistance level is around $25, and then $30. Looking at the downside, there is strong technical support around $15, near the stock’s 50-day moving average (at $15.58).
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty