Charlotte's Web Analyst Raises Price Target On Heels Of Abacus Merger

Over the last 12 months, Charlotte’s Web Holdings Inc. CWBHF shares fell 80%.

Earlier this week the company announced a CA$99 million ($68.2 million) merger with Abacus Health Products Inc. ABCS ABAHF.

Hemp wellness company also posted its fourth quarter and full-year 2019 financial results with a quarterly net loss of $18.8 million or 19 cents per share, versus a net income of $3.2 million or 3 cents per share in the prior-year period.

The Charlotte’s Web Analyst

Cantor Fitzgerald’s Pablo Zuanic raised the price target on Charlotte’s Web from $4.85 to $5.00, with a Neutral rating.

The Charlotte’s Web Investment Thesis

During Tuesday’s conference call, Charlotte’s Web management further discussed the benefits of the new merger deal with Abacus, which is “complementary and very likely synergistic across the FDM channel,” said Zuanic, adding that it's also “attractively valued.”

Furthermore, the company’s management expressed its enthusiasm regarding the FDA issuance of guidance for CBD as a dietary supplement this year.

The analyst projects Abacus closed 2019 with $22 million in cash, and that both companies will experience advantages from the merger, wondering about the possibility of other bidders showing up.

According to Cantor’s calculations, the company experienced a 50% decline in sales to FDM, which is “disappointing given the company now reaches 11,000 doors,” wrote Zuanic. The sales drop was mostly noticed in oil tinctures, while pet products ad topicals experienced growth.

Charlotte’s Web further announced a sales guidance cut, partly directed by the current COVID-19 pandemic, projecting 10-20% growth for the year, which translates to $104-114 million versus CF consensus of $134 million / $146 million.

The stock is trading higher than other companies in the CBD/cannabis industry today, reported Zuanic.

“If we take the intraday price of $4.14, CWBHFin pro forma terms (taking the consensus for Abacus, and the post deal share count of 128m) would be valued at 1.9x CY21 sales (2.9x CY20) and as 10x EBITDA, which we could consider attractive in absolute terms given the combined asset, although not necessarily in relative terms.”

Although Zuanic lowered their standalone estimates, considering the deal optionality the analyst relied on 3x to value the stock, raising their price target to $5.00.

The Charlotte’s Web Price Action

The Charlotte’s Web shares were trading 1.86% higher at $4.05 per share on Wednesday morning.

Photo courtesy of Charlotte's Web.