Cronos Group (NASDAQ:CRON) struggled in 2019. The company’s results weren’t impressive for three quarters. Also, headwinds in the cannabis industry took down the stock. The stock fell by 49.1% on the NASDAQ. The shares fell by 51.5% on the TSE. Let’s take a look at what analysts have to say about the company and its stock.
Jefferies Reduced Cronos Group’s Target Price In January
In January, Jefferies picked Aphria (NYSE:APHA) as its top pick in the cannabis sector. The firm thinks that Aphria has a strong footing in the medical cannabis industry and branding in the recreational market. Jefferies increased the target price for Aphria stock to $8.4 from $8.3.
I agree that Aphria has set itself apart in the cannabis space. The company has proved its financial strength under Irwin Simon’s leadership. Aphria has reported profitability for three consecutive quarters.
However, Jefferies remained bearish on Cronos Group. The company struggled with profitability in all three of the quarters in fiscal 2019. Jefferies reduced the target price for Cronos Group stock to $5.3 from $7.5. The stock’s average target price is set at 12.0 Canadian dollars. The target price implies an 8% upside potential for the stock for the next 12 months.
Analysts’ Target Price
The average target price has gone down from 15.70 Canadian dollars before the third-quarter earnings. The dismal results made analysts skeptical about the stock. In December, analyst Greg McLeish of Mackie Research Capital said that only the big players like Aurora Cannabis and Canopy Growth (NYSE:CGC) (TSE:WEED) could survive the initial challenges in the cannabis industry. Analysts think that the cannabis industry is still evolving. Let’s see what the target price is for Cronos Group’s peers.
- The average target price for Canopy Growth stock is $21.38, which implies a downside potential of 14% from its current price.
- Aurora Cannabis has a target price of 4.5 Canadian dollars, which implies an upside potential of 64% from its current price.
- The average target price for Aphria is set at 11.9 Canadian dollars, which implies an upside potential of 73% from its current price.
- OrganiGram has a target price of 6.28 Canadian dollars, which means upside potential of 47% from its current price.
In January, a Raymond James analyst echoed the same. He stated that the cannabis sector won’t rebound until the fourth quarter of fiscal 2020. He also noted that smaller companies won’t be able to survive the similar pressure faced in 2019. As a result, smaller companies could go bankrupt. Among the surviving cannabis players, he thinks that Cronos Group and OrganiGram (NASDAQ:OGI) could come out stronger due to their “strong medical sales and category-leading products and brands to leverage innovative technologies.”
Analysts’ Recommendation for Cronos Group
There has been a slight change in analysts’ recommendations since we last discussed them. Currently, 13 analysts cover Cronos Group stock. Two analysts rate Cronos is a “strong-buy,” while three recommend a “buy.” Around seven analysts think the stock is “hold,” while one recommends a “strong sell.” Aphria has three “strong-buy” recommendations from analysts, while OrganiGram has four “strong-buy” recommendations. In comparison, two analysts rate Aurora Cannabis stock as a “strong-buy,” while two recommend Canopy Growth stock as a “strong-buy.”
We’ll have to see how Cannabis 2.0 sales progress. Last year, a lack of legal stores impacted most cannabis companies’ revenue in Canada. This year, Canada has allowed more legal stores to open. However, many other factors could impact a company’s revenue and profitability. Regulation scandals could hit the sector. So, analysts are still a little skeptical about the industry.
Analysts’ Revenue and Profitability Estimates
Last month, we discussed how analysts’ revenue estimates for Cronos Group changed from December 2018. In January, analysts revised the revenue, profitability, and gross profit estimates.
For fiscal 2019, the revenue estimates remain the same. Analysts have reduced the revenue estimate from 152 million Canadian dollars to 150 million Canadian dollars for fiscal 2020. The revenue estimate is 342 million Canadian dollars for fiscal 2021 compared to 343 million Canadian dollars in December.
For fiscal 2019, the gross profit estimate declined to 24 million Canadian dollars from 25 million Canadian dollars. The gross profit estimate declined to 88 million Canadian dollars from 91 million Canadian dollars for fiscal 2020. For fiscal 2021, the gross profit estimate reduced to 185 million Canadian dollars from 197 million Canadian dollars.
Overall, analysts expect a gradual increase in the company’s revenue and gross profit in fiscal 2020 and 2021.
For fiscal 2019, the EBITDA could be around -72 million Canadian dollars. For fiscal 2020, the EBITDA loss could be about 51 million Canadian dollars. The estimate was -52 million Canadian dollars in December. For fiscal 2021, the EBITDA estimate is -21 million Canadian dollars compared to -29 million Canadian dollars in December. Analysts expect the EBITDA loss to reduce by fiscal 2021.
Stock Performance in January
January has started off well for most cannabis stocks. On January 14, many stocks fell after Aphria reported its results for the second quarter of fiscal 2020. The earnings results were impressive. However, the company cut its fiscal 2020 guidance and the stock fell. As of January 17, Cronos Group stock has risen 12.1% YTD (year-to-date). Meanwhile, Aurora Cannabis has fallen 1.3%, while Canopy Growth and Aphria have risen 18.0% and 0.96%. OrganiGram has gained 33.0% YTD.