IB Net Payout Yields Model

Canopy Growth: Still Rich Over $10

Canopy Growth just released horrible FQ2 results.
The company reported a C$155.7 million Adjusted EBITDA loss that isn't sustainable despite their large cash balance.
Canopy Growth forecasted the flower market to remain oversupplied until next June.
A price target of $10 places the stock at a more reasonable 5x EV/FY20 sales targets.
The Canopy Growth (CGCFQ2 quarter was so bad an investor will find the results very difficult to analyze in order to value the stock. As previously warned, the company had meager expectations for a supposed budding cannabis empire while any weak results were bound to crush the stock. In fact, investors should consider the closing price of just below $16 with a market cap of $5.3 billion as still highly stretched with the dramatically reduced exceptions in the Canadian market.
Read the full article at Seeking Alpha. 

Update - November 21
Fade this rally, as CGC heads back to $10 and lower. 

Constellation Brands (STZ) doesn't plan to make any additional cash investments outside of "possible" exercise of warrants. A big point here is that Constellation only plans to generate $6.6B in operating cash flows in the next 3 years (w/o growth) while returning $4.5B to shareholders. The company doesn't have this massive cash balance to invest in Canopy Growth.

Update - November 17
These analysts were so wrong and still wrong.

-Benchmark’s Mike Hickey maintained a Buy rating and reduced the price target from CA$60 to CA$30.
-Bank of America Merrill Lynch’s Christopher Carey reiterated a Neutral rating on Canopy Growth and lowered the price objective from CA$30 to CA$24. 

Disclosure: No position. Please review the disclaimer page for more details. 


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