Cronos Analyst Sees 'Compelling Value,' Upgrades Pot Stock Amid Delay In Financials

Cronos Group Inc. CRON shares have fallen 74.84% in the last 12 months. 

On Monday, the company announced it is postponing the release of its financial results again. On Tuesday, Stifel downgraded the stock from Buy to Hold with a price target lowered from CA$12 ($8.95) to CA$8, seeing the company’s latest postponement of financial results as a sign of a “larger issue.”

The Cronos Analyst

MKM Partners’ Bill Kirk upgraded Cronos from Neutral to Buy and lowered the price target from CA$12 to CA$11.

The Cronos Thesis

“We are taking advantage of broad market concerns and weakness related to 10K filing uncertainty, to upgrade Cronos to Buy,” Kirk said in the Wednesday upgrade note. (See his track record here.) 

The source of the Cronos filing issue — bulk wholesale — does not carry strategic significance and is a "non-core part of Cronos' business," the analyst said. 

“Even if all the wholesale revenue and profitability didn't exist (unlikely), we still think there is compelling value.”

The company has 75% of its market cap, or CA$41.9 billion, in net cash and equivalents; has a demonstrated history of keeping its promises; and has the advantage of a relationship with Altria Group MO, he said. 

An examination of transcripts from six Canadian licensed producers going back to 2017 found that, on average, industry projections were accurate half of the time, while Cronos was correct 68% of the time, Kirk said. 

“This gives us more confidence that the filing delays are not indicative of broader issues.”

Altria is the “most important vendor into U.S. convenience stores and likely has more points of distribution than any CPG company,” the analyst said. 

 “We take our 4Q numbers down to account for uncertainty and realize prior period adjustments may be necessary.”

CRON Price Action

The stock was trading 3.2% higher at $5.49 at the time of publication Wednesday.