Cantor Fitzgerald Starts Sundial Growers (SNDL) at Neutral
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Cantor Fitzgerald analyst Pablo Zuanic initiates coverage on Sundial Growers (NASDAQ: SNDL) with a Neutral rating and a price target of $1.15.
The analyst comments "Retail-fueled volatility pushed SNDL shares up 21x (yes, 21 times) between its late-Oct bottom of $0.14 and the recent 2/10 peak of US$2.95. Thus, even though fundamentals have remained mixed, with an ongoing market-share loss according to the latest scanner data, and despite a 3Q20 reported net sales decline of 36% seq (-54% YoY), the run-up in the share price enabled the company to raise equity and convert warrants and debt. Cash holdings by the end of Feb should be C$700Mn, compared with C$26Mn at the end of Sep 2020. In an industry that is quickly consolidating, this puts the company in a good position to acquire smaller companies that have developed solid niches in parts of the Canadian market or overseas. We believe that SNDL is on the lookout for opportunities and that this may itself trigger defensive M&A action among other companies (we see the recent HEXO+Zenabis (N) merger as one example). All that said, the stock's valuation and volatility (the stock is currently 53% below its 2/10 peak) make it difficult to take an active position in the stock, in our view. SNDL now trades at 43x EV to current sales, well-above the direct peer group average in the teens. Our CY22 sales estimate is well-below the FactSet consensus ($79Mn vs. $99Mn); but even if we use the consensus, the stock would be trading at 22x projected CY22 sales compared with 10x or below for most of the LPs (only the companies backed by CPG are trading in the teens for CY22 sales, such as CRON (NC) at 18x projected CY22 sales and WEED (N) at 15x). In this sense, we think the stock would still appear to be overvalued, despite the recent slump. Still, retail investors' ongoing speculation, plus the potential for SNDL to make strategic and accretive acquisitions (given its strengthened BS), make the short case risky, we believe. We initiate coverage with a Neutral rating and set a 12-month PT based on a multiple of 20x projected 2022 sales; this yields a price target of US$1.15 (or C$1.47) by March 2022."
Shares of Sundial Growers closed at $1.45 yesterday.
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