Analyst Shares Thoughts On cbdMD's Q2 Earnings: 'Sustainable Ongoing Operation'

CbdMD Inc YCBD was in-line with analyst expectations as the company confirmed April sales remained flat during March.

Management’s guidance of a 40% decline in operating expenses in the June quarter and confirmation of cbdMD being on track to reaching positive cash flows by yearend 2020 indicate the company has a “sustainable ongoing operation,” according to Cantor Fitzgerald.

See Also: CbdMD's Stock Rises 80% After Net Quarterly Sales Spike YoY Reaching $9.4M

The CbdMD Analyst

Pablo Zuanic maintained a Neutral rating for cbdMD, raising the price target from $1.20 to $1.80.

The CbdMD Thesis

While cbdMD’s brick-and-mortar business reported a steep sequential decline in sales in the fiscal second quarter, its e-commerce business remained stable, versus rivals Charlotte's Web CWBHF and CV Sciences Inc CVSI recording meaningful declines in their online sales, Zuanic said in the note.

cbdMD’s adjusted gross margins expanded to 71% in the March quarter, from 64% in the prior quarter, mainly due to the mix shift to ecommerce, which now accounts for 72% of total sales), the analyst noted.

He added that cbdMD’s cash burn remained in the level of $5.5 million. The company raised $16.7 million to end the March quarter with $14.5 million in net cash.

Zuanic believes the cannabidiol sector could being consolidating once the FDA guidelines become clearer, and that “brands with scale and name recognition will make for attractive targets.”

YCBD Price Action

After rising 80% on Monday, shares of cbdMD traded around $1.76 at time of publication Tuesday.