Analysts at Stifel GMP said they retain their positive outlook on cannabis producer TerrAscend after it reported first quarter results mostly in-line with expectations.
For the first quarter, TerrAscend posted revenue of $69.4 million, up from $48.6 million in the same quarter in 2022, and a net loss from continuing operations of $19.2 million, compared to $13.8 million in the year-ago quarter.
“Current operations seem to have sustainably reversed course from last year’s repositioning with further margin enhancing levers management is capable of pulling to offset any additional headwind that may come to fruition,” Stifel’s analysts commented in a note to clients.
“More specifically, Michigan and Pennsylvania pricing seem to have stabilized while New Jersey continues to march higher on sales and margin despite new stores being generally slow to open.”
They noted the company’s guidance for second quarter sales and earnings before interest, taxes, depreciation and amortization (EBITDA) to rise in the low single digits quarter-over-quarter, which they wrote was just shy of expectations but still a good result given the current environment.
“However, TER's outlook could meaningfully improve with Maryland recreation launch as the company is the most levered to the state and management pointed to imminent store M&A to boost growth further,” they wrote.
“This accelerated growth profile may coincide with the company's expected TSX uplisting, potentially offering additional share upside.”
As such, the analysts reiterated their ‘Buy’ rating on the stock and C$4.50 price target. TerrAscend’s shares are currently trading at C$2.09.
“Our estimates decrease slightly to reflect the slower rollout of New Jersey recreation stores while we continue to exclude Maryland recreation from our forecasts given limited visibility on potential magnitude of the rollout,” they wrote.
“This is offset by applying a higher valuation multiple of 13x enterprise value/2024e EBITDA, 1x below alcohol peers, to account for Maryland recreation optionality.”
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