Analyst Sees Upside Potential For Canopy Growth, Upgrades Stock

Canopy Growth Corp CGCWEED shares have lost 55.89% over the last 12 months.

The Analyst

BMO Capital's Tamy Chen and Peter Sklar updated Canopy Growth from Market Perform to Outperform and boosted their price target from $25 to $40.

The Thesis

"We believe there is potential upside to Street expectations for FQ3/20 driven by the company's pivot into a rec product mix that should now be better aligned with demand," the analysts wrote in a Tuesday note.

According to BMO, even the smallest beat in the financial results for the quarter has the potential of changing investors' impression of the stock.

See Also: BofA Says Canopy Growth Should Take Action To Right-Size Costs

The analysts believe the value-priced brands have seen better sales in the last quarter of 2019, and Canopy was among the companies that launched and/or sold more value-priced brands in the last couple of months.

"In addition, while value-priced products are lower margin, we believe this should be largely offset by further reduction in costs from underutilized assets," the analysrts wrote.

Although Canopy is not the only company BMO covers that has value-priced products, Chen and Sklar think the stock is in a better position regarding relative return profile, because many other companies with value-priced brands "will likely continue to be at risk of requiring additional financings."

Price Action

Canopy Growth's stock traded 7.4% higher at $23.14 per share on Tuesday. The company is expected to release third-quarters earnings in late February.