PYX Stock Forecast
Pyxus International Inc (NYSE:PYX) received a much-needed jolt in the arm after announcing it was entering the cannabis market. The company—formerly known as Alliance One International, Inc. (NYSE:AOI)— entered September trading at $17.70. On October 9, it hit an eight-year high of $48.49—for a five-week gain of 173.9%.
Pyxus’s share price has given up some gains to well-earned profit-taking and is currently trading near $37.00 per share. The big question is, can Pyxus International keep the momentum going?
On October 17, Canada became the first industrialized country to legalize the recreational use of marijuana. While this will be a boon for pure-play marijuana stocks, other lesser-known companies in the cannabis space are hoping to spark up investor interest as well.
Why Is the Pyxus Share Price Skyrocketing?
Any company affiliated with the marijuana sector has been a blessing for investors. Pyxus International is no exception. After watching the stock trend downward for the last 11 years, investors were given reason to cheer when the agricultural company announced a new name, ticker symbol, and brand identity on September 12.
Pyxus Announces New Direction and Acquisition
In a February letter to shareholders, Pieter Sikkel, the president and CEO of Pyxus, announced a series of developments aimed at building the company’s value over the next few years.
This included shifting away from being a tobacco grower and capitalizing on new market opportunities. The new initiative was dubbed “One Tomorrow.” (Source: “Alliance One International CEO Letter To Shareholders,” Pyxus International Inc, February 8, 2018.
To that end, Pyxus International’s wholly-owned indirect subsidiary, Canadian Cultivated Products, Ltd., announced in January that it had acquired a 75% equity position in Canada’s Island Garden Inc. (CIG) and an 80% stake in Goldleaf Pharm Inc. (Source: “Canadian Cultivated Products, Ltd. Acquires Strategic Equity Positions in Cannabis Companies,” Canadian Cultivated Products, February 8, 2018.)
One Million Square Feet of Production Space
CIG is just one of 35 companies fully licensed under the Access to Cannabis for Medical Purposes Regulations (ACMPR) to produce and sell medicinal cannabis in Canada. It has a 20,000-square-foot indoor growing facility in Prince Edward Island (PEI), and plans are underway to add an additional 250,000 square feet of greenhouse capacity.
At the start of 2018, CIG signed a memorandum of understanding with the province of PEI to be one of only three suppliers to supply the recreational cannabis market.
Goldleaf, meanwhile, is completing a 20,000-square-foot indoor growing facility in Ontario and expects to add an additional 710,000 square feet of production over a three-year period.
Combined, the Canada cannabis investments are expected to include one million square feet of production space within a three-year period. It also provides Pyxus the opportunity to expand into international markets as legalization of medicinal and recreational marijuana gains traction around the world.
Bryan Mazur, New Executive Vice President, Global Specialty Products
In early May, Pyxus announced that Bryan Mazur joined the company as Executive Vice President, Global Specialty Products. He is responsible for global business development and driving innovation and growth. Prior to joining Pyxus, Mazur was Vice President and General Manager of Dr. Pepper Snapple Group. (Source: “Alliance One International Announces New Executive Vice President, Global Specialty Products,” Pyxus International, Inc., May 3, 2018.)
Pyxus Expands Cannabis Subsidiary, Launches New Brands
In late May, Pyxus announced that Canadian Cultivated Products was rebranded as FIGR Cannabis, Canada’s Island Garden was changed to FIGR East, and Goldleaf Pharm was rebranded as FIGR Norfolk. FIGR products are now available in Canada. (Source: “Alliance One International Announces Production Expansion Of Its Canadian Cannabis Subsidiary, Launch of New Brand,” Pyxus International Inc, May 21, 2018.)
Pyxus International also announced a two-phase expansion at Canada’s Island Garden that will significantly expand its Canadian cannabis line.
Phase 1 of the expansion includes a 166,000-square-foot greenhouse and 54,000-square-foot warehouse that is expected to be completed in spring 2019. This will increase the facility’s annual production from 1,200 kilograms (2,645 pounds) to 18,000 kilograms (39,700 pounds).
Once Phase 2 is completed, Canada’s Island Garden is expected to have a total annual production capacity in excess of 35,000 kilograms (77,160 pounds).
FIGR Cannabis Continues Product Expansion
In August, Pyxus International announced that Goldenleaf Pharma, a subsidiary of FIGR Cannabis, completed the purchase of a 20-acre property next to the Goldleaf facility in Simcoe, Ontario, Canada. (Source: “Alliance One International Indirect Subsidiary FIGR Cannabis Continues Production Expansion,” Pyxus International Inc, August 9, 2018.)
“Goldleaf Pharm is advancing through focused expansion in order to meet the needs of Canadians as we prepare for the legalization of recreational cannabis in Canada,” said Larry Huszczo, co-founder of Goldleaf Pharm Inc.
“The additional 20-acres of land will give us more production space with the ability to grow our current footprint to more than 700,000 square feet.”
Goldleaf Received Cultivation License from Health Canada
Investors received more encouraging news in early October, when Pyxus International announced that Goldleaf Pharm Inc. received its ACMPR cultivation license from Health Canada.
The license allows Goldleaf Pharm to begin cultivating medicinal cannabis at its Simcoe, Ontario facility. (Source: “Pyxus’ indirect Canadian subsidiary receives ACMPR cannabis cultivation license from Health Canada,” Pyxus International Inc, October 2, 2018.)
FIGR’s two subsidiaries are now licensed to produce medicinal cannabis in Canada. This also places FIGR’s subsidiaries in a position to produce marijuana for recreational use, now that it’s legal in Canada.
Pyxus International Financials
Pyxus International has called its new business unit its “Global Specialty Products.” If the unit hits its projected numbers, the company’s long-term outlook will be encouraging.
In fiscal 2018, Pyxus projects that total earnings before interest, taxes, depreciation, and amortization (EBITDA) will be $170.0 million, with 97% of that coming from tobacco. By fiscal 2023, the Global Specialty Products unit is forecast to account for about two-thirds of the company’s total EBITDA.
The company is off to a good start, especially considering that recreational marijuana wasn’t legal when Pyxus announced its financial results for the first quarter of fiscal 2019, ended June 30, 2018. (Source: “Alliance One International Reports Positive Fiscal First Quarter 2019 Results and Continued
Progress on One Tomorrow Transformation Initiatives,” Pyxus International Inc, August 2, 2018.)
First-quarter revenue increased 5.1% to $291.0 million. Gross profit increased 44.8% to $41.4 million, and gross profit as a percentage of sales improved to 14.2% this year compared to 10.3% last year.
Net loss for the quarter improved to $0.8 million, or $0.08 per share, versus $32.5 million, or $3.63 per share last year. Meanwhile, adjusted EBITDA improved by 93.7% to $19.4 million.
This is what Pieter Sikkel had to say:
This fiscal year is off to a strong start and progressing in line with our expectations. We saw improvements in total sales and other operating revenues, gross profit, gross profit as a percentage of sales and adjusted EBITDA compared to the same period last year. Our business is on track to deliver the full year results consistent with our previously announced guidance.
Despite its new name, Pyxus International is well known in the tobacco industry and has a long history of trading on the New York Stock Exchange (NYSE). This bodes well for the company as it transforms into a cannabis leader in Canada and expands its footprint internationally.
Pyxus could be a great long-term play and, unlike many marijuana juggernauts, its share price isn’t overvalued (yet). The company has a market cap of $350.0 million, a trailing price-to-earnings (P/E) ratio of 3.82, and “only” 11.5% of its shares are shorted.
In the third and fourth quarters of 2019, investors will be able to get a better handle on how well the company’s One Tomorrow initiative is working. Until then, it’ll be a fun, roller-coaster ride fueled by speculation and press releases.