Undervalued Green Stock Coverage Initiated With SPECULATIVE BUY Rating and C$1.50 Price Target

Published: Sat, 03/23/19

 

Undervalued Green Stock Coverage Initiated With  SPECULATIVE BUY Rating and C$1.50 Price Target

Rally On, Traders!

Sometimes a Wall Street stock report really grabs us from the headline and doesn't let us go. Vancouver firm Cannacord Genuity did that with its first in-depth look at CLS Holdings USA (OTC:CLSH), a little stock right now that Canadian analysts are staking their reputation on MULTIPLYING if everything blows its way.

An excerpt follows along with a link to the entire report:

Multi-state play on Massachusetts and Nevada

We are initiating coverage of CLS Holdings USA (CLSH) with a SPECULATIVE BUY rating and a C$1.50 price target.

CLSH is a multi-state "green" operator with planned operations in the legal recreational and medical Massachusetts (MA) and Nevada (NV) markets. Upon closing key acquisitions, we believe CLSH will be positioned to capitalize on growing demand for legal product in the US through vertical operations  including production and dispensaries that are well placed in MA and NV, which we see as two of the more substantial emerging US recreational markets.



(Want the entire 38-page report? Click the picture above or HERE.)

Our C$1.50 price target for CLSH is based on a sum-of-the-parts discounted cash flow analysis of the company’s MA and NV operations, including the Brockton and Leicester acquisitions. We use a 12% discount rate, 2% terminal growth rate, and a CADto-USD exchange rate of C$1.30/$1.00. 

Our price target implies an EV/EBITDA multiple of approximately 5.2x our 2020 EBITDA estimate. We believe a SPECULATIVE BUY rating is appropriate
 given the risks and uncertainties tied to the regulatory environment and the completion of acquisitions.

In our view, CLSH has positioned itself to operate in two of the more attractive markets in the country, Massachusetts and Nevada, through a combination of dispensary and cultivation/production assets. With an aggregate market value we peg at nearly $850M in 2018 and conservatively expect to grow to more than $2.1B by 2022, MA and NV offer a combined market CAGR of approximately 20% through our forecast period.

While conservative, this growth rate is nevertheless 25% higher than our 16% estimate for the broader US market. Within our 10-year DCF analysis, we anticipate CLSH can maintain a 7% share of the Massachusetts market and a 4% share in Nevada.

For additional expansion beyond current growth initiatives in CLSH’s core markets, we believe Michigan, Illinois and New Jersey represent likely priorities. With significant existing medical markets, large populations and looming recreational programs (especially in Michigan), these three states offer substantial growth opportunities. We expect CLSH to enter these markets through acquisition of licenses or fully operational businesses. While not yet factored into our model, we estimate these expansion states represented a combined market size of $1.1B in 2018 and project growth to nearly $2.0B in 2022.

We note that our projections for 2022 for these three markets could prove conservative as only Michigan factors in a recreational market program rollout, following an initial launch of a recreational program in 2020 following the 2018 approval of recreational sales. Accordingly, Michigan represents the lion’s share of our aggregate market size for the expansion states ($856M or 78% in 2018; $1.3B or 65% in 2022).

Happy, Happy, Happy Trading!

                                        
                                                                                                

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