Newest Acquisition Has CGC Stock Inching Lower

Earnings are due out from Canopy Growth next Wednesday

Deputy Editor
Aug 9, 2019 at 10:00 AM
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Pot name Canopy Growth Corp (NYSE:CGC) announced this morning that it's buying U.K.-based biopharmaceutical company Beckley Canopy Therapeutics for an undisclosed sum, in order to develop weed-based wellness products and strengthen its foothold in Europe. CGC shareholders don't seem too impressed, with the equity down 1% to trade at $32.52.

Despite the slight drop, CGC stock is on pace to end atop its 10-day moving average for a second straight day -- a feat not accomplished in nearly two months. In fact, CGC just hit a seven-month floor of $30.75 earlier this week. Nevertheless, the security is still up almost 22% year-to-date.

Strong earnings could turn the tides for Canopy Growth, with the company's quarterly report set for Wednesday, Aug. 14. The company has only stepped into the earnings confessional two other times since its debut on Wall Street, with the shares suffering a one-day post-earnings loss of 8.1% in June. CGC enjoyed a 3.1% pop the day after its mid-February report. This time around, the options market is pricing in a 10.2% earnings reaction for the shares -- nearly double the average one-day swing.

As far as direction, it looks like options buyers may be bracing for more downside. While long calls are still outnumbering puts on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), made evident by the stock's 10-day put/call volume of 0.62, this ratio sits higher than 91% of all other reading from the past year. This points to a healthier-than-usual appetite for bearish bets over bullish ahead of Canopy Growth earnings.

In spite of CGC's recent slump, analysts remain hopeful, with 11 of the 15 in coverage calling it a "buy" or better. In the same vein, the security's consensus 12-month price target of $46.50 is at a roughly 42% premium to current levels. Should the firm's earnings disappoint, a round of downgrades or price-target cuts could exacerbate selling pressure on the cannabis concern.

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