So far in October, Canopy Growth (CGC) (WEED) has lost 10.5% of its stock value as of Thursday. Vaping-related deaths and subsequent regulatory actions lowered the company’s stock price. Hexo reported lower-than-expected preliminary fourth-quarter revenues. Several analysts lowered their target price for the company in October, which caused the stock price to fall.
Analysts’ target price for Canopy Growth
As of Thursday, 21 analysts cover Canopy Growth. Compared to September 10, one more analyst covers the stock. On September 20, MKM Partners initiated coverage on Canopy Growth with a “neutral” rating and a target price of 33 Canadian dollars. In October, four analysts have lowered their target prices for Canopy Growth.
- Piper Jaffray from $49 to $40
- Compass Point from $32 to $24
- CIBC from 50 Canadian dollars to 45 Canadian dollars
- Jefferies from 77 Canadian dollars to 25 Canadian dollars.
Although Piper Jaffray lowered its target price for Canopy Growth, it’s still optimistic about the company. Piper Jaffray maintained its “overweight” rating. According to a Barron’s report, Piper Jaffray analyst Michael Lavery wrote in his research note that “Canopy is well positioned in the sector, particularly with US$2.3 billion in cash in an industry recently facing growth difficulty raising capital.”
Barron’s also reported that Lavery expects the company’s new management to spend cash more cautiously. However, Lavery lowered the revenue estimates for fiscal 2020 and fiscal 2021 due to the delay in opening new stores.
From the above graph, you can see that there has been a gradual decline in the consensus target price since May. Also, analysts’ consensus target price has fallen from 55.73 Canadian dollars on September 10 to 51.71 Canadian dollars. The new target price represents a 12-month return potential of 90.4%.
On the same day, Aurora Cannabis (ACB), HEXO (HEXO), and Aphria (APHA) were trading at a discount of 91.5%, 129.3%, and 135.9% from their respective target prices.
Analysts’ ratings for Canopy Growth
Although analysts have lowered their target prices, they’re still bullish on Canopy Growth. As of October 10, 57.1% of the 21 analysts recommended a “buy,” 38.1% recommended a “hold,” and 4.8% recommended a “sell.”
There wasn’t a rating change in October. However, Bank of America downgraded the stock on September 27. TheStreet reported that Bank of America cut its rating from “buy” to “neutral” and lowered its target price from $46 to $27.
Let’s look at analysts’ ratings for its peers:
- For Aurora Cannabis, 47.1% of the 17 analysts recommend a “buy” rating. To learn more, read Aurora Cannabis: Analysts’ Target Price after Its Earnings.
- Analysts are bullish on HEXO. Among the 16 analysts, 62.5% recommend a “buy.”
- Among the 12 analysts that cover Aphria, 75% recommend a “buy.”
YTD stock performance
This year, the cannabis sector has underperformed the broader equity market. Increased operating expenses, the expectation of lower revenue growth in the second half of 2019 due to slower-rate of new store openings, and concerns about vaping-related deaths have dragged the stock prices down. Canopy Growth has lost 25.8% YTD (year-to-date) of its stock value as of Thursday. During the same period, Aurora Cannabis, Hexo, and Aphria’s stock prices have fallen 20.2%, 26.8%, and 21.1%, respectively.
Despite the fall, Aurora Cannabis continues to expand its medical cannabis business. Recently, the company launched cannabinoid-infused sublingual wafers in association with CTT Pharmaceutical Holdings. To learn more, read Aurora Cannabis: New Product Launch with CTT Pharma.
On Thursday, Hexo announced its preliminary revenues for the fourth quarter, which were lower than expected. The company also withdrew its previous guidance for fiscal 2020. These factors caused Hexo stock to fall 23.0% on the same day.
Aphria is scheduled to report its first-quarter earnings on October 15. Read Aphria: What to Expect from Its Q1 2020 Earnings to learn more.