- Viridian analyst Jonathan DeCourcey says Ayr Wellness is his top cannabis stock pick.
- The company’s stock is discounted considering its track record, he said.
- DeCourcey gives the company a price target of $42.
- See more stories on Insider’s business page.
There are the cannabis giants and then there are the underdogs who, despite great management and solid assets, just don’t receive the same amount of attention as their larger counterparts.
Ayr Wellness, which operates 51 stores across the US is one of the underdogs, according to Viridian Capital Advisors analyst Jonathan DeCourcey. Still, he said in a Thursday note that company is his “top MSO pick.”
MSO stands for multi-state operators, a term used for US cannabis companies that operate in multiple states.
Viridian began coverage of Ayr in January and gave the company a price target of $38. In March, it first said the stock could reach $42. Viridian has a buy rating on the shares.
Ayr trades for $28.92 as of midday Friday, meaning it would have to climb 45% to reach that price target.
As the cannabis industry has matured, a select few players have broken away from the pack to expand and become profitable, garnering the lion’s share of investor dollars. Investors previously told Insider that there are plenty of smaller companies that should be getting more attention and credit.
DeCourcey lays out four key reasons why Ayr is a top choice among not only these smaller players but also the top US cannabis companies. One of the most compelling may be the company’s discounted valuation compared to its peers.
1. Recent acquisitions put Ayr in a winning position
The strategic acquisitions that the company made in 2020 have given it big advantages, said DeCourcey. He added that he expects Ayr to see “transformative growth” in 2022 as a result of its recent dealmaking.
“For AYR growth stems from both the integration and buildout of expansion states following 2020 acquisitions and continued execution and improved macro conditions in legacy markets,” DeCourcey said.
2. The company’s core markets offer opportunities for significant growth
Ayr’s assets in Massachusetts and Nevada are poised for success, according to Viridian. In Massachusetts in particular, DeCourcey says the company’s cultivation expansion plans will help boost Ayr’s revenue from about $57 million in 2020 to $102 million this year. Cannabis is legal for all adults in both states.
Ayr also owns assets in Arizona, Ohio, Pennsylvania, New Jersey, and Florida.
3. Ayr has plenty of cash for further expansion
At the end of 2020, the company made a slew of acquisitions across the US, bringing its total footprint to seven states. Still, it has around $210 million in cash on hand and DeCourcey said that Ayr is well positioned to make more deals.
“Given anticipated cash generation with operations, we believe the remaining cash balance leaves AYR with sufficient capital to complete additional acquisitions in the near term and further expand upon the company’s attractive geographic footprint,” he said.
4. The company has an attractive valuation considering its track record
DeCourcey says Ayr is undervalued, based on a comparison of the company’s enterprise value to an estimate of its future profits. The analyst compared the company to the top 10 US cannabis companies by market value.
“We note that AYR’s current discounted valuation makes the company a favorable acquisition partner when using equity in any deal,” DeCourcey said. “Additionally, even after having raised debt last year, AYR remains one of the highest ranked companies in the Viridian Cannabis Credit Tracker so we believe debt could also be used to finance additional large scale acquisitions.”