The cannabis sector is currently abuzz with earnings. MedMen Enterprises (MMEN) (MMNFF) is one of the first few cannabis companies to report its earnings this month. It reported its fiscal 2019 fourth-quarter earnings on October 28. Its stock soared 4.65% following its earnings announcement. Now let’s see analysts’ comments on the target price of this stock.
What analysts are saying about MedMen
The graph above shows a more than 2x decline in MedMen’s target price YoY (year-over-year). Compared to September, its target price has slumped 22.6% to 4.2 Canadian dollars from 5.43 Canadian dollars. Moreover, on October 2, many analysts, including Cormark Securities, revised Medmen’s target price down after its release of its preliminary fourth-quarter results.
In terms of ratings, currently, MedMen has a “strong buy” rating from two analysts, the same as in September and October 2018. However, its “buy” rating from three analysts is down from four in both September 2019 and October 2018. While analysts continue to hold bullish views, we can see a drop in their confidence. The number of “hold” ratings on the stock has risen to two from one in September 2019 and none in October 2018.
Tracking the trend
Over the last 12 months, MedMen stock has garnered a lot of attention from analysts, resulting in an expansion in its coverage. The number of analysts covering the stock has increased from six to eight in the period. However, its target price has experienced a massive drop in the same timeframe.
MedMen’s latest earnings
MedMen’s revenue rose $42 million, up 104% YoY, in the fourth quarter. However, this was 15% below analysts’ consensus estimate of $49.67 million. It realized this revenue predominantly in California, where it has 11 retail stores. Moreover, the company recorded a 50% gross margin compared to its 53% gross margin in the third quarter owing to new stores that realized lower margins at the outset. The company’s gross margin pertains to its retail operations. It was much better than the 29% gross margin it reported in the fourth quarter of 2018.
Looking at its bottom line, we can see that MedMen recorded an adjusted EBITDA loss of $39.4 million. Further, the company’s cash balance dropped 57% YoY to $33.7 million.
CEO Adam Bierman said, “While industry tailwinds propelled us forward over the past twelve months, changing macroeconomic conditions have led us to refocus our strategy, to reevaluate our assets and to determine where it makes most sense to allocate capital going forward.”
Further, for the next year, MedMen plans to work on three objectives. According to the company, these are “optimizing [its] current retail assets, unlocking the further potential of [its] factories, and leveraging [its] omnichannel strategy.”
The company continued, “As we bring all of our factories online and up to full capacity, and simultaneously optimize our current retail assets across our core geographic markets, we continue on our path toward profitability.”
Current stock performance
After making a small gain after its earnings, the stock is slumping toward a new 52-week low. On October 30, MedMen stock was trading at 1.36 Canadian dollars, closer to the new low of 1.35 Canadian dollars it reported on October 17. Moreover, its shares are down nearly 70% YTD (year-to-date) as of October 30. Its latest target price translates to an annualized potential return of nearly 280%.
On the downside, we can see that MedMen continues to spend cash at an alarming rate. This a key factor for investors to consider. We advise you to stay alert and cautious and keep tabs on the company’s potential to boost its cash flow over the coming quarters.