After initiating coverage of the stock in late August, Echelon Wealth Partners analyst Russell Stanley has made CannTrust Holdings (CannTrust Holdings Stock Quote, Chart, News: CSE:TRST) one of his “Top Picks”.

In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $6.25 on CannTrust Holdings, implying a return of 42 per cent at the time of publication.

The analyst says he expects the company’s winning streak will continue.

“The stock has already been the strongest performer in its peer group, with its 91% one-month return more than 3x the group average return of 30%. However, we believe that the stock is still attractively priced under conservative forecast assumptions,” the analyst says. “Potential catalysts include improved financial results, additional product development news, and the granting of a sales license for the Niagara facility.”

Stanley says he views CannTrust Holdings as cheap by most any metric.

“(CannTrust) is still trading at just 6.8x EV/2019E EBITDA based on our estimates, representing a 30% discount to the peer group average of 9.7x. We believe our estimates are conservative, as we assume that the Niagara facility runs at 45% of Phase 1 capacity in 2018 and 70% of capacity in 2019. Should the facility achieve full capacity utilization (as Vaughan already has), our 2019E EBITDA estimate would improve to $78M,” he notes. “The stock is currently trading at just 5x that level on an EV/EBITDA basis, and that EBITDA estimate would justify an $8.50/shr target price, all else equal. Our formal estimates reflect only the Phase 1 expansion, with the Phase 2 plan adding another 20,000kg of potential production, which could allow TRST to generate annualized EBITDA of $148M at full capacity. Finally, the stock is currently trading at approximately $18/gram of fully-funded cultivation capacity versus the adjusted group average of $22/gram. Simply being rerated at the group average implies a value of $5.40/shr, representing a 23% return from current levels.”

Stanley thinks CannTrust will generate Adjusted EBITDA of negative $5.0-million on revenue of $18.1-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $37.0-million on a topline of $102.6-million the following year.

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