Dawson James analyst James McIlree maintained a Buy rating on 22nd Century (XXII – Research Report) today and set a price target of $7.50.
James McIlree has given his Buy rating for 22nd Century’s stock due to a multitude of factors.
In the third quarter, the company reported revenue of $17.8 million, surpassing McIlree’s estimation of $15.5 million. The EBITDA loss and operational cash flow burn for the quarter closely matched his projections and displayed a significant decrease from Q2. The company’s implementation of a $15 million annual cost reduction program has considerably influenced cash usage, leading McIlree to believe that additional cost cuts are essential given the state of the company’s balance sheet.
The report also highlights that there were substantial charges in Q3, including a goodwill write-down of $33 million and impairment charges amounting to $24 million, primarily in the hemp/cannabis segment. Excluding these charges, operational expenses fell in all sectors, leading to an annual cost reduction of $13.6 million, which is close to the company’s target of $15 million annually.
McIlree anticipates that further cuts will be required, coupled with a strategy that narrows its focus to align the company’s capabilities with its balance sheet. He also notes potential catalysts that could bolster the company’s business and stock, such as the FDA’s final review of a menthol ban proposal that could exclude the company’s menthol VLN combustible cigarettes, thus providing the company with a unique market position. Additionally, a settlement with the company’s insurance carrier and a future low-nicotine mandate could have a positive impact.
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22nd Century (XXII) Company Description:
22nd Century Group, Inc. is a plant biotechnology company, which engages in the development of technology that will allow to increase or decrease the level of nicotine and nicotinic alkaloids in tobacco plants and levels of cannabinoids in cannabis plants through genetic engineering and plant breeding. Its products include X-22, modified risk cigarettes, spectrum government research cigarettes, magic 0 and magic 2, moonlight, red sun, variable nicotine-level research cigarettes, and verfola. The company was founded on September 12, 2005 and is headquartered in Clarence, NY.
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