Over the past 12 months, Canopy Growth Corp (NYSE: CGC) shares have fallen 55.89%. On Tuesday, BofA Securities analyst Christopher Carey reiterated a Buy rating on the stock with a price objective of CA$36.00 ($27.59).
"Canopy sales must be much higher to breakeven on profit," Carey wrote in a note.
According to BofA calculations, Canopy should generate around CA$260 million in quarterly net sales to break-even on EBIT versus CA$109 million in the second quarter of fiscal 2020.
The analyst said there are many possible positive scenarios, such as cannabis legalization on the federal level, or Canada speeding up new store openings. Nevertheless, Carey pointed out that a more realistic scenario would be for the company to take better care of its costs.
“Balancing the long-term potential with near-term profitability (namely cash preservation) is the fine line," he wrote.
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On the other positive note, BofA believes Canopy CEO David Klein has enough professional expertise to help the company move forward, as he has previously managed many challenging business transformations.
"[W]e think the time may be right for Canopy to take more decisive action to right-size costs for the near-term realities," according to Carey. "Obvious areas include facilities either under-utilized or not producing, strategic spending, and sales and marketing."
Carey said Canopy is in many ways ahead of its Canada peers, "from leading share in Canada to a robust balance sheet," but needs to enhance its visibility on profit in order to boost investor faith "in the long-term model."
Canopy Growth's stock traded higher by 6.7% to $23 per share on Tuesday morning.