Canopy Growth stock has bounced back a bit from a one-year low it reached in mid-November. An analyst at BMO Capital Markets now thinks it is time to buy.
Where we were. Canopy Growth stock (ticker: CGC) tanked in 2019. After a larger-than-expected loss diluted stakeholder Constellation Brands ' (STZ) own earnings, Bruce Linton was fired in July as co-CEO. Mark Zekulin stayed on as the sole CEO while the company looked for his eventual successor.
Canopy stock hit its lowest point of the year in November, when it touched $13.81 amid a broader slide for Canadian cannabis stocks. Confidence in the sector was dwindling.
But since then it has risen 63%. The company named David Klein, who was executive vice president and chief financial officer of Constellation Brands, as its new CEO. He began on Jan. 14.
Canada also launched so-called Cannabis 2.0 offerings—including pot-infused edibles, vapes, and beverages. Canopy, with help from Constellation, is betting cannabis beverages can become more than a niche product.
What’s new. BMO Capital Markets analyst Tamy Chen raised her rating on the stock to Outperform from Market Perform in a note published on Tuesday, citing the potential for gains ahead of its fiscal third-quarter earnings report.
One of Canopy’s struggles, according to Chen, was producing too much of the wrong products—in Canopy’s case, softgel capsules. She thinks that it has since shifted more toward a mix that better matches demand, including more value-priced cannabis products.
“Canopy is not the only LP in our coverage with value-priced products but we believe the stock at current levels offers a better relative return profile considering that a number of other LPs with value-priced brands will likely continue to be at risk of requiring additional financings,” she wrote, referring to licensed producers of pot in Canada.
Looking ahead. Chen raised her price target to 40 Canadian dollars (US$30.33) from C$25. She also raised her estimate of third-quarter revenue to C$108 million, from C$102 million.
“The timing of our upgrade is based on our view that at this point, even a modest beat in FQ3/20 results could begin to shift investor sentiment on the stock,” Chen wrote.
Canopy stock popped 7.9% to $23.27 after the market opened Tuesday morning. The S&P 500 index was up 0.4%.