Canopy Growth shares target cut by Piper Sandler on growth concerns

Tuesday - Piper Sandler has adjusted its outlook on Canopy Growth Corp (NASDAQ:CGC) shares, lowering the price target to $2 from the previous $3, while keeping an Underweight rating on the stock. The firm's analyst cited tempered sales expectations and ongoing share issuance as reasons for the adjustment.

Canopy Growth's financial forecasts have been revised, with the first quarter of fiscal year 2025 (F1Q25) sales estimates reduced by approximately $7 million. The analyst noted that this new forecast still assumes a sequential increase in cannabis revenue through fiscal year 2025 (F25), which may be overly optimistic.

While the first half of F25 (F1H25) is expected to see minimal growth, the second half (F2H25) could see some improvement due to new product launches and expansion in the German market.

The company's cash burn rate has reportedly moderated, but the ongoing issuance of shares to service debt remains a concern. According to the analyst, this dilution of shares is a key factor in the reduced price target.

Even with the possibility of cannabis being reclassified from Schedule I to Schedule III in the United States, the firm does not anticipate significant near-term catalysts for Canopy Growth.

The updated fiscal year 2025 sales estimate now stands at approximately C$290 million, down from the previous estimate of C$300 million. However, the fiscal year 2026 (F26) sales estimate remains unchanged at around C$320 million. The new price target represents roughly 2 times the estimated fiscal year 2025 enterprise value to sales (EV/Sales) ratio.

In other recent news, Canopy Growth Corporation has been making substantial strides in its expansion strategy. The company recently finalized its acquisition of Jetty and two Wana Brands business units through its subsidiary, Canopy USA. This move aligns with Canopy Growth's efforts to bolster its presence in the cannabis market.

In addition to these acquisitions, the company also exercised an option to acquire a significant portion of Acreage Holdings (OTC:ACRGF), Inc.'s debt, a transaction involving approximately $99.8 million.

Canopy Growth has also reported a promising financial performance in its fourth quarter of fiscal year 2024. The company's consolidated net revenue saw a 16% year-over-year increase, reaching $73 million. Despite mixed results, the management remains hopeful about achieving positive adjusted EBITDA in the second half of fiscal year 2025.

Analysts' perspectives on Canopy Growth have been cautiously optimistic. Piper Sandler maintained its Underweight rating on the company, adjusting future sales forecasts downward.

Meanwhile, Roth/MKM reduced its price target but maintained a Buy rating, indicating a balance of caution and recognition of the company's potential in a changing regulatory and operational landscape. These recent developments reflect Canopy Growth's continued commitment to growth and shareholder value in the evolving cannabis sector.

InvestingPro Insights

InvestingPro data and insights provide a deeper dive into Canopy Growth Corp's current financial health and market performance. With a market capitalization of $478.89 million USD and a negative P/E ratio, reflecting investor concerns about profitability, the company's financial challenges are evident. The revenue for the last twelve months as of Q4 2024 stands at $219.37 million USD, with a notable decline of 10.83% from the previous year. Despite this, there was a 6.67% quarterly revenue growth in Q4 2024, which could signal a potential turnaround that aligns with Piper Sandler's forecast of increased sales in the second half of F25.

InvestingPro Tips suggest caution with Canopy Growth's stock. The company is quickly burning through cash, and analysts do not anticipate it will be profitable this year. Additionally, the stock price is quite volatile, with a significant uptick over the last six months. However, it is important to note that Canopy Growth does not pay dividends to shareholders, which may influence investment decisions for those seeking income-generating assets.

For those interested in further analysis, InvestingPro offers additional tips on Canopy Growth, which could be invaluable for investors looking to make informed decisions. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking an array of investment insights and data points.

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