Aphria (APHA), a Canada-based global cannabis company, will report its results for the first quarter of fiscal 2020 today after the market opens. There has been a lot of pessimism about the cannabis sector since last week. Will Aphria’s results shed some light on the sector? What do we expect from Aphria?
Analysts’ estimates Aphria’s earnings
Analysts have slightly lower estimates for Aphria’s revenues in the first quarter of fiscal 2020. The estimate for a loss is higher than what we discussed previously. The revenues could be around 132.7 million Canadian dollars for the first quarter of 2020 compared to 13.2 million Canadian dollars in the first quarter of 2019. Analysts expect the company to report a loss of 0.02 Canadian dollars per share in the first quarter of 2020. However, the revenues are still lower than what the company reported in the first quarter of 2019.
Analysts’ estimates give us an idea about how the company is doing. However, I think that the lower estimate is based more on the current situation in the cannabis industry. Hexo (HEXO) expects lower revenues in the fourth quarter due to various factors. The company withdrew its fiscal 2020 outlook. Also, Hexo’s CFO resigned. As a result, many analysts downgraded the stock and cut the target price.
There are concerns that cannabis sales might fall this year, which impacted other cannabis stocks. Many analysts, like PI Financial and Jefferies, cut Aphria’s target price. PI Financial cut the target price for 15 cannabis stocks. To learn more read, Cannabis Stocks in Trouble, PI Financial Cuts Target Price.
What else is happening?
Aphria stock was stronger after its fourth-quarter results in August. However, the stock started October with a loss. Notably, Aphria stock fell last week. Aleafia Health (ALEAF) (ALEF) announced the termination of Aphria’s supply agreement for wholesale cannabis. To learn more, read Aphria-Aleafia Health Deal Axed: How Stocks Reacted.
Aphria has a positive outlook for fiscal 2020
Despite the chaos in the cannabis space, Aphria still has a positive outlook for fiscal 2020. Overall, the company expects to generate net revenues of approximately 650 million Canadian dollars–700 million Canadian dollars. Aphria also expects to report an adjusted EBITDA of roughly 88 million Canadian dollars–95 million Canadian dollars. The company will likely fulfill its annual production capacity after all of its facilities are fully licensed. Meanwhile, Aphria has a different operational structure. The company has operations in Europe. Aphria focuses more on the medical cannabis side. We have discussed how the medical cannabis industry is growing globally.
Profitability will likely decrease more
The EBITDA is a vital measure of profitability. Analysts are concerned about Aphria due to pessimism surrounding the cannabis sector. Now, analysts expect the company’s profitability to fall more in the first quarter of fiscal 2020. Aphria might report a negative EBITDA of 2.1 million Canadian dollars.
Meanwhile, Hexo (HEXO) might report a negative EBITDA of 10.5 million Canadian dollars in the fourth quarter. Cronos Group (CRON) could report a negative EBITDA of 19.2 million Canadian dollars for its third quarter. Cronos Group is ready for the second wave of recreational marijuana legalization in Canada this month. Canopy Growth (CGC) (WEED) might report a negative EBITDA of 87.0 million Canadian dollars for the second quarter of 2020.
Price coverage and stock performance
Currently, many analysts have cut Aphria’s target price. Hexo’s downgrade and lower target price triggered the cut in other cannabis stocks. Jefferies cut the target price to 11 Canadian dollars from 15 Canadian dollars. Canaccord Genuity and PI Financial also reduced the target price. Meanwhile, Jefferies cut Hexo, Aurora Cannabis, Canopy Growth, Cronos, and Tilray’s target prices.
Aphria’s consensus target price is 13.6 Canadian dollars. To learn more about analysts’ estimates, read Aphria: Analysts’ Target Price and Ratings.
Aphria stock has fallen 2.3% in October, while it fell 17.0% in September. The stock has fallen 15.7% year-to-date. In October, Aurora Cannabis (ACB), Canopy Growth, Tilray, and Cronos Group have fallen 20.0%, 17.9%, 16.4%, and 13.1%.
How does the cannabis sector look in October?
Currently, dark clouds loom over the cannabis space. Besides companies’ lower revenue estimates, investors are concerned about scandal investigations. Tilray (TLRY) and Hexo are being investigated for possible breaches. Read Cannabis Scandal Radar: Is Tilray Next? and HEXO: The Next Cannabis Player on the Scandal Radar? to learn more.
Cannabis corruption in the US could put more pressure on marijuana legalization.
So far, the Horizons Marijuana Life Sciences ETF (HMMJ) has fallen 12.9% in October. HMMJ tracks the North American cannabis industry.
Will Aphria surprise investors? Will the company’s results be a ray of hope for the cannabis sector? We’ll provide an in-depth discussion of the earnings call after Aphria’s results.