29 Aug

Aphria Has Analysts Feeling Optimistic—Here’s Why

WRITTEN BY Sushree Mohanty

Aphria (APHA) reported excellent fiscal 2019 fourth-quarter earnings results this month, after which its stock saw a huge boost. However, the cannabis industry has faced some challenges in August. Let’s discuss analysts’ take on the company and its stock.

Analysts’ take on Aphria

Analysts have a positive opinion on Aphria, especially after its upbeat earnings results, which it reported on August 1. Many headwinds have been affecting the cannabis sector lately, but Aphria’s strong earnings report made analysts optimistic about the company. A TipRanks article said that if Aphria’s peers struggle with profitability this earnings season, then the market could see Aphria as an attractive opportunity.

CNBC’s Mad Money host Jim Cramer, who was previously in favor of Cronos (CRON) and Canopy Growth (CGC) (WEED), recently changed his tune. He favored Aphria over Canopy after its fourth-quarter results.

As of 11:09 AM ET, Aphria was up 2.2% today.

Analysts’ estimate for Aphria

Analysts expect Aphria’s revenue to come in at around 131.4 million Canadian dollars in the first quarter of fiscal 2020, higher than the previous year’s period. They expect the company to report EBITDA of -2.6 million Canadian dollars, lower than the previous year’s period. Its gross margin could be 35.9% compared to 63.6% in the first quarter of fiscal 2019.

Aphria had a profitable fourth quarter

Aphria’s fourth-quarter earnings release at the beginning of this month came as a breath of fresh air to the cannabis sector. The sector struggled with scandal news in July after CannTrust’s blunder with regulation violations. Almost all cannabis players saw falls as a result. Later, the termination of Canopy Growth CEO Bruce Linton also shook the sector.

Aphria reported a profitable fourth quarter. Its net revenue rose 75% YoY (year-over-year). Revenue for adult-use cannabis rose 158% YoY. It also reported EBITDA of 0.209 million Canadian dollars. We discussed in Aurora Cannabis: What’s the Word on the Street? how EBITDA is an important measure of profitability for cannabis companies.

The company’s upbeat earnings results boosted the sector’s performance as well. However, Canopy Growth’s disappointing results later in the month took a toll on the sector again.

Price target changes after earnings

After Aphria’s earnings release, CIBC raised the target price on its stock to 7 Canadian dollars from 6.5 Canadian dollars. Haywood Securities cut its target price to 14.5 Canadian dollars from 16 Canadian dollars, and Bryan Garnier cut its target price to 18 Canadian dollars from 23 Canadian dollars.

Fiscal 2020 guidance

The company expects to generate total revenue of 650 million–700 million Canadian dollars in fiscal 2020. It also expects to generate adjusted EBITDA in the range of 88 million–95 million. Aphria mentioned that it will be on track for annual production capacity of 255,000 kilograms once all its facilities are fully licensed.

Price coverage for Aphria

Currently, 12 analysts cover Aphria stock. Three give it “strong buys” for the next 12 months, and six give it “buys.” Two rate it as a “hold,” and one rates it as a “sell.” The target price for the stock is 14.94 Canadian dollars, which represents an 81% potential upside. The target price for peer Cronos (CRON) is 20.3 Canadian dollars, and the target price for Tilray (TLRY) is $64.4.

How have Aphria’s cannabis peers performed?

August was earnings season for cannabis companies. While Aphria, IIPR, and Cronos impressed with their results, Canopy’s were a disappointment.

Cronos reported better-than-expected second-quarter revenue. However, its operating losses were a drag. Tilray beat analysts’ revenue estimates for the second quarter of 2019. However, its net losses were huge. Canopy reported disappointing results, missing both its top and bottom line estimates.

Acreage Holdings (ACRGF) reported stellar revenue growth of 501% YoY. However, it reported EBITDA of -$37 million. Innovative Industrial Properties (IIPR) reported impressive results for the second quarter. It reported a 155% YoY increase in rental revenue. Curaleaf (CURLF) reported its second-quarter results yesterday. It reported a loss and missed earnings estimates. However, it surpassed revenue estimates and also reported positive adjusted EBITDA.

In August, Aphria has gained 15.6%, and it’s up 9.3% year-to-date. Cronos and Tilray are up 19.3% and 33.3%, respectively, in August, while Canopy is down 25.8%. IIPR is down 3.1%, while Acreage is down 39% in the month. The Horizons Marijuana Life Sciences ETF (HMMJ) is also down 12.3% in the month.

The cannabis sector is heating up and finding support from presidential candidates. However, FDA regulations and FBI investigations into corruption still pose a challenge. We look forward to Aphria’s fiscal 2020 first-quarter results.

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