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On Wednesday, Lucid (NASDAQ:LCID) Capital Markets initiated coverage on NewLake Capital Partners (WA:CPAP) Inc. (OTC:NLCP) with a Neutral rating and a price target of $14.00. The firm's analyst highlighted the company's role in providing real estate capital to state-licensed cannabis operators, noting its ownership of 33 properties and a total of 1.6 million square feet leased to 13 tenants. According to InvestingPro data, the company maintains a strong financial position with more cash than debt on its balance sheet and an excellent overall financial health score.
The analysis pointed out NewLake Capital Partners' minimal leverage, with a debt to EBITDA ratio of 0.2x. The company's dividend yield stands at 13.5%, which InvestingPro data shows has grown by 7.5% over the last year, marking four consecutive years of dividend increases. This dividend is expected to be supported by adjusted funds from operations (AFFO) through 2026. Lucid Capital Markets also mentioned potential federal legislative changes that could significantly benefit the operations of NLCP's tenants.
Despite these positive aspects, the analyst expressed caution due to the broader challenges facing the cannabis industry. Many cannabis operators are currently struggling with profitability, grappling with structural issues and an oversupply in the market. Furthermore, these operators are approaching significant debt maturities in 2026, which could impact their financial stability. This industry uncertainty has contributed to NLCP's stock declining by over 32% in the past six months, though InvestingPro analysis suggests the stock is currently trading below its Fair Value.
The $14 price target set by Lucid Capital Markets is based on 69% of the firm's estimated net asset value (NAV) for NewLake Capital Partners, which is $20.15. This valuation is in comparison to the company's peers in the cannabis real estate investment trust (REIT) sector, which are trading at 59% of NAV. On an earnings multiple basis, the target price is 7 times Lucid Capital Markets' estimated funds from operations (FFO) for 2025, aligning with the multiples at which peers are trading. The company currently trades at an EV/EBITDA multiple of 6.05x and maintains a strong gross profit margin of 99.5%. For deeper insights into NLCP's valuation metrics and 13 additional ProTips, visit InvestingPro.
In other recent news, Newlake Capital Partners reported its fourth-quarter 2024 earnings, which fell short of analyst expectations. The company announced earnings per share of $0.29, missing the projected $0.36, while revenue came in at $12.5 million, slightly below the forecasted $12.75 million. Despite these misses, Newlake Capital Partners saw a 6% increase in annual revenue to $50.1 million, with net income for 2024 rising to $26.1 million from $24.6 million in 2023. The company also raised its annual dividend by 8% to $1.72 per share, reflecting its commitment to shareholder returns.
Newlake Capital Partners continues to navigate challenges within the cannabis industry, focusing on strategic growth and quality investments. Analysts noted that the company's cautious outlook for 2025 includes plans for share buybacks and monitoring tenant debt maturities. During the earnings call, CEO Anthony Coniglio emphasized the company's strategic focus, acknowledging the difficulties faced by the cannabis sector. The firm highlighted its ongoing portfolio expansion and significant construction projects and acquisitions.
Additionally, Newlake Capital Partners addressed tenant-specific challenges, particularly with Revolutionary Clinics and Calypso, noting minimal spillover from the PharmaCann IPR situation. The company remains optimistic about future opportunities, with state-level cannabis reforms gaining momentum and potential federal rescheduling on the horizon. Despite industry headwinds, Newlake Capital Partners maintains a strong liquidity position, with $103 million available, including cash and untapped credit capacity.
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