What to Make of Sundial Stock After its Big Joint Venture

Yesterday, Canadian cannabis company Sundial Growers Inc. (NASDAQ:SNDL) announced a partnership with SAF Group. The companies entered an agreement to form a 50/50 joint venture through a new corporation entitled SunStream Bancorp. According to Sundial Growers, the joint venture is meant to “leverage a strategic financial and operational partnership to generate asymmetrically enhanced risk-return opportunities in the cannabis industry to provide exposure to a portfolio of attractive debt, equity and hybrid investments.” The joint venture’s first task will be to raise funds, with Sundial Growers already committing an initial $100 million.

In response to the news, Sundial stock tacked on 14% yesterday. The shares traded as high as $3.96 back on Feb. 11, and are up 242% year-to-date. There remains tremendous amounts of built-up pessimism toward SNDL though; all four of the analysts in coverage maintain "hold" or "strong sell" rating, and a whopping 217% of the stock's total available float is sold short.

Sundial Growers is set to report earnings tomorrow, March 17 after the close. Sundial has missed earnings expectations on all four of its most recent earnings reports. For the fourth quarter of 2019, Sundial missed analyst estimates by a margin of $0.88. For the first quarter of 2020, the company failed to meet expectations by a margin of $0.12. For the second quarter of 2020, Sundial missed estimates by a margin of $0.28. In the most recent earnings report, they  again missed expectations by $0.31. Analysts anticipate that the company will report a loss of -$0.06 for its upcoming earnings on Wednesday after hours.

One thing's for sure, SNDL has a history of big post-earnings reactions. In the last five quarters, the stock averages a post-earnings drop of 23.1%. This time around, the options market is pricing in a post-earnings move of 32.4%, regardless of direction.