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CannTrust (CTST) to Report Q2 Earnings: What's in Store?

Zacks Equity Research

CannTrust Holdings Inc. CTST will report second-quarter 2019 earnings results.

On Feb 25, 2019, the company started trading on the New York Stock Exchange (NYSE) under the ticker symbol of CTST.

In the last reported quarter, CannTrust delivered a positive surprise of 280.00%.

Shares of CannTrust have plunged 54.8% so far this year versus the industry’s increase of 6.6%.

Let’s see, how things are shaping up for this announcement.

Factors to Consider

CannTrust is a federally regulated licensed producer of medical and recreational cannabis in Canada. The company’s revenues are generated from the sale of these cannabis products both in the medical and the recreational markets.

During the first quarter of 2019, CannTrust produced a record of more than 9,400 kilograms of cannabis from its perpetual harvest greenhouse, thereby marking a significant sequential increase. Evidently, revenues in the first quarter increased both year over year and sequentially owing to the growing medical patient days and sales from the recreational market. We expect this positive trend to continue in the to-be-reported quarter.

However, earlier this month, CannTrust’s greenhouse facility in Pelham, Ontario was found non-compliant under certain regulations imposed by Health Canada. The facility was declared non-compliant for producing cannabis in five unlicensed rooms for a period of six months. Licenses for each of these five rooms were issued in April 2019. There were 12 rooms at the Pelham facility.

Subsequently, CannTrust implemented a voluntary hold on the sale and shipment of all cannabis products as a precautionary measure. The company dismissed its current CEO Peter Aceto after a special committee of board members investigated the matters related to the non-compliant report issued by Health Canada. Robert Marcovitch has been appointed as the interim CEO.

We believe, investors will be keener to know the updates on the above events during the company’s second-quarter conference call than its usual release of sales and earnings numbers.

Earnings Whispers

The proven Zacks model does not conclusively show that CannTrust is likely to beat on earnings this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: CannTrust has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at a loss of 4 cents each. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CannTrust carries a Zacks Rank #2, which increases the predictive power of ESP. However, its 0.00% ESP in the combination makes surprise prediction difficult for the stock this earnings season.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

CannTrust Holdings Inc. Price and EPS Surprise

CannTrust Holdings Inc. Price and EPS Surprise

CannTrust Holdings Inc. price-eps-surprise | CannTrust Holdings Inc. Quote

Stocks That Warrant a Look

Here are some biotech stocks worth considering as our model shows that these have the right mix of elements to beat on earnings this time around.

La Jolla Pharmaceutical Company LJPC has a Zacks Rank of 2 and an Earnings ESP of +4.93%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nektar Therapeutics NKTR has an Earnings ESP of +1.43% and is a Zacks #2 Ranked player.

Regeneron Pharmaceuticals, Inc. REGN has a Zacks Rank #3 and an Earnings ESP of +6.25%. The company is scheduled to release second-quarter results on Aug 6, before the market opens.

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