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Cannabis Therapy to Drive Canopy Growth's (CGC) Q3 Earnings

Zacks Equity Research

Canopy Growth Corp CGC is scheduled to report third-quarter fiscal 2020 results on Feb 14, before market open.

In the second quarter of fiscal 2020, the company's loss per share of 82 cents was wider than the Zacks Consensus Estimate of a loss of 27 cents. The company, however, missed estimates in three of the trailing four quarters, the average negative surprise being 205.9%.

Let's take a look at how things are shaping up prior to this announcement.

Factors at Play

Lately, Canopy Growth has been seeing robust performance by its key business segment cannabis therapy.

In May 2019, the company acquired Europe's largest cannabinoid-based pharmaceutical manufacturer C3 along with five approved cannabinoid therapies. This has been contributing through the last-reported quarter and is expected to have done the same in the fiscal third quarter.

During the last-reported quarter, the company acquired a 76% stake in BioSteel Sports Nutrition to strengthen its CBD sports nutrition portfolio. The company’s partnership with Acreage Holdings also progressed well through the fiscal second quarter. These transactions are likely to have boosted the company’s performance in the fiscal third quarter.

Canopy Growth Corporation Price and EPS Surprise


Canopy Growth Corporation Price and EPS Surprise


Canopy Growth Corporation price-eps-surprise | Canopy Growth Corporation Quote

Of late, the company has started spending on cultivation and post-harvest processing capacity. This drove sales volume as reflected in the last reported quarter’s results as well. The company sold 10,913 kilogram and kilogram equivalents into direct channel. Sales from the Canadian retail business were up 24% and that from Canadian medical channel were up 8% sequentially in the fiscal second quarter. The trend is likely to have continued in the third quarter as well.

The company continues to invest in various extraction and advanced manufacturing capabilities for automating its processes and laying groundwork for the next batch of product platforms. Canopy Growth has been building its CBD platform in the United States and accelerating investments in markets beyond North America. These investments are expected to show on the upcoming quarterly results.

Similar to the last-reported quarter, the company is expected to have witnessed a drop in gross margin, attributed to restructuring charges, operating expenses incurred for facilities that are not yet cultivating or processing cannabis or producing cannabis-related products or facilities with underutilized capacity.

Which Way are Q3 Estimates treading?

For third-quarter fiscal 2020, the Zacks Consensus Estimate for total revenues of $79.2 million suggests growth of 26% from the prior-year reported figure. The consensus estimate for the quarter is pegged at a loss 36 cents.

What Our Quantitative Model Predicts

Our proven model predicts earnings beat for Canopy Growth this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat.

Earnings ESP:  Canopy Growth has an Earnings ESP of +16.33%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canopy Growth carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering from the same space with the right mix of elements to surpass expectations this earnings season. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tandem Diabetes Care, Inc. TNDM has a Zacks Rank of #2 and an Earnings ESP of +86.44%.

Nevro Corp. NVRO has a Zacks Rank #3 and an Earnings ESP of +3.45%.

DexCom DXCM has an Earnings ESP of +12.27% and a Zacks Rank #2.

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