Earnings Update: Canopy Growth Corporation (TSE:WEED) Just Reported And Analysts Are Trimming Their Forecasts

The analysts might have been a bit too bullish on Canopy Growth Corporation (TSE:WEED), given that the company fell short of expectations when it released its third-quarter results last week. Unfortunately, Canopy Growth delivered a serious earnings miss. Revenues of CA$101m were 13% below expectations, and statutory losses ballooned 130% to CA$0.54 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

See our latest analysis for Canopy Growth

Taking into account the latest results, the most recent consensus for Canopy Growth from 19 analysts is for revenues of CA$501.0m in 2024 which, if met, would be a meaningful 14% increase on its sales over the past 12 months. The loss per share is expected to greatly reduce in the near future, narrowing 88% to CA$0.76. Before this earnings announcement, the analysts had been modelling revenues of CA$550.9m and losses of CA$0.71 per share in 2024. So it's pretty clear consensus is more negative on Canopy Growth after the new consensus numbers; while the analysts trimmed their revenue estimates, they also administered a moderate increase in per-share loss expectations.

The average price target fell 17% to CA$3.99, implicitly signalling that lower earnings per share are a leading indicator for Canopy Growth's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Canopy Growth analyst has a price target of CA$11.00 per share, while the most pessimistic values it at CA$1.75. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Canopy Growth's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 11% growth on an annualised basis. This is compared to a historical growth rate of 28% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 19% annually. Factoring in the forecast slowdown in growth, it seems obvious that Canopy Growth is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that the analysts increased their loss per share estimates for next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Canopy Growth's future valuation.

With that in mind, we wouldn't be too quick to come to a conclusion on Canopy Growth. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Canopy Growth analysts - going out to 2025, and you can see them free on our platform here.

That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Canopy Growth , and understanding these should be part of your investment process.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.