Curaleaf Is A Promote After The Rally (OTCPK:CURLF)

Curaleaf Holdings (OTCPK:CURLF) rallied 29% final week to $4.00, however it’s nonetheless down 6.9% in 2023. Whereas the general inventory market is up up to now this yr, hashish shares, as measured by the New Hashish Ventures International Hashish Inventory Index, have declined 18.0%. The bear market that started in February 2021 stays in drive, with costs down over 91% for the reason that peak.

I wrote about Curaleaf in January, it was additionally at $4.00. I mentioned that the inventory was low cost, however there have been higher options. Since then, the very largest MSOs have been combined:

On common, the 5 largest MSOs have declined since January thirteenth by %. Trulieve (OTCQX:TCNNF), which I discover very enticing nonetheless regardless of its latest soar, is down 32.8%, whereas Verano Holdings (OTCQX:VRNOF) has rallied 9.0%.

In mid-April, once I reviewed Curaleaf, it had declined vastly to $2.44 and wasn’t lifting but. I mentioned then that I favored it way more because of the lower cost, however that the valuation relative to different giant MSOs was unattractive. I shared a goal then of $3.81 at year-end primarily based on attaining 2X projected 2024 income for its enterprise worth. This labored out to 7X enterprise worth to projected adjusted EBITDA. Since then, the estimates have declined.

A Have a look at Q1

With three acquisitions accomplished, the income progress from a yr in the past of 14% wasn’t that spectacular. The $336.5 million was down 4.5% from $352.5 million in This fall and a bit forward of the anticipated $333 million. Adjusted EBITDA had been anticipated to be $73 million, and the corporate hit that estimate. The adjusted EBITDA fell 4% from a yr in the past and 5% sequentially.

Wholesale income fell for Curaleaf by 11% from a yr earlier throughout Q1 and represented 18.5% of general gross sales. Retail income expanded 21%. Excluded from the Q1 report was the operations in California, Colorado and Oregon on account of them being discontinued operations. The income for these three states was $7.4 million in Q1, down 49% from a yr in the past.

The Analyst Outlook

Analysts presently mission Curaleaf 2023 income will enhance 2.5% to $1.37 billion with adjusted EBITDA rising 7.5% to $328 million. For 2024, they count on income will develop 7.6% to $1.47 billion. Adjusted EBITDA is projected to develop 18% to $387 million. That is a margin of 26.3%.

In April, after Q1 had ended however forward of the corporate reporting it, the estimates had been greater. Analysts had been searching for income of $1.5 billion and adjusted EBITDA of $402 million in 2023 and $1.6 billion and $448 million in 2024.

The present 2024 adjusted EBITDA forecast is 13.6% decrease than it was in mid-April. My third article on Curaleaf in early Might mentioned the falling estimates forward of its Q1 report.

Valuation

The inventory is buying and selling above my prior year-end goal by 5%. It seems costly relative to friends:

The valuation appears excessive outright given the low progress the corporate is experiencing and anticipated to expertise. 8.7X 2024 projected adjusted EBITDA is way greater than the opposite friends. Additionally, the inventory has a -$592 million tangible guide worth.

Once I final checked out Curaleaf right here in April, my $3.81 goal labored out to be 7X enterprise worth to projected 2024 adjusted EBITDA. I proceed to make use of that a number of, and multiplying 7 by the projected adjusted EBITDA of $387 million is $2.71 billion. The market cap of Curaleaf is presently greater at $2.89 billion. Taking the $2.71 million enterprise worth that I mission and subtracting the online debt of $478 million yields a goal market cap of $2.23 billion. Based mostly on their shares excellent presently, this works out to $3.09. That is 19% decrease than my prior goal in April and barely decrease than my goal in Might, and it’s 23% decrease than the present worth.

If I had been to regulate my ratio greater, it might nonetheless be costly. Utilizing 10X, the goal can be $4.70. Whereas this would supply a return of 17.5% on the greater valuation as an alternative of a loss, I feel that buyers would do a lot better in its friends, particularly smaller names like Planet 13 Holdings (OTCQX:PLNHF). Two weeks in the past, I shared my $1.08 year-end goal, which is 89% greater than its present worth. That could be a debt-free firm that has a price-to-tangible-book-value ratio of simply 1.1X. My goal there’s primarily based on 10X enterprise worth to projected adjusted EBITDA in 2024.

Chart

Trying on the chart over the previous yr, the inventory is down considerably nonetheless from its peak close to $8 in December. Additionally it is up over 70% from the low shut in April:

I observe that the amount hasn’t been very excessive. I see resistance maybe right here, however maybe as excessive as $5. The center resistance stage of $4.50 was assist in late 2022 after which resistance in early 2023.

A pullback might check a spread of $2.35-$3.20. Given my year-end goal of $3.09, a transfer into the 2s wouldn’t shock me.

Conclusion

Down solely 7% in 2023 and comparatively costly to its friends, Curaleaf is not enticing to me. The corporate is rumored to be looking to buy Cronos Group (CRON) or its Canadian operations, however I do not see this as a driver of the inventory. I imagine that the worth might decline, however maybe a budget hashish sector will do higher. In that case, I count on Curaleaf to lag its friends.

Editor’s Word: This text discusses a number of securities that don’t commerce on a serious U.S. trade. Please pay attention to the dangers related to these shares.