Aphria: Why Jefferies Recommends a ‘Buy’


Nov. 20 2020, Updated 3:34 p.m. ET

Aphria (APHA) reported its results for the first quarter of fiscal 2020 on October 15. Since then, the stock has fallen 7%. Despite the impressive results, many analysts cut Aphria’s target price. However, Jefferies thinks that the stock is a “buy” now. Let’s see what’s happening with Aphria and its stock.

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Jefferies rates Aphria as a “buy”

On Wednesday, an article from The Cannabis Stock reported that Jefferies analysts Owen Bennett and Ryan Tomkins gave the stock a “buy” rating with a target price of 11 Canadian dollars. The target price represents an upside potential of 65% from the company’s current trading price. Before Aphria’s first-quarter earnings, Jefferies reduced the target price from 15 Canadian dollars to 11 Canadian dollars. Jefferies analysts also said that Aphria wants to divest its 21.5% stake in Althea. However, the analysts think that Aphria’s presence in Australia and other countries isn’t important right now. The company’s presence is more important in Canada where it’s based and cannabis is fully legal.

Aphria’s first-quarter results

Aphria reported revenues of 126.1 Canadian dollars—higher year-over-year. However, the revenues were lower than analysts’ estimates of 132.2 million Canadian dollars. Aphria reported a positive EBITDA of 1.0 million Canadian dollars. Analysts expected the company to report a negative EBITDA of 2.2 million Canadian dollars. The company also reported an EPS of 0.07 Canadian dollars, which beat analysts’ estimates of a loss of 0.02 Canadian dollars.

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What do other analysts think?

Despite the impressive first-quarter results, many analysts cut the target price for Aphria stock. CIBC cut the target price to 6.5 Canadian dollars from 7 Canadian dollars. Meanwhile, Eight Capital reduced the target price to 9 Canadian dollars from 11 Canadian dollars. Cormark Securities reduced the target price to 8 Canadian dollars from 14 Canadian dollars.

Currently, 12 analysts cover Aphria stock. Among the analysts, six recommend a “buy,” three recommend a “strong-buy,” two recommend a “hold,” and one recommends a “sell.” I think that the negativity surrounding the cannabis sector this month made analysts question the future for many cannabis stocks. Notably, HEXO withdrew its fiscal 2020 outlook and reported lower fourth-quarter results.

Meanwhile, Canopy Growth (CGC) (WEED) has a majority “hold” rating on its stock. The stock also has a target price of 46.02 Canadian dollars, which is 74% higher than its trading price. Aurora Cannabis (ACB) has a majority “hold” rating on its stock. The stock has a target price of 8.06 Canadian dollars, which is 70% higher than its trading price.

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Aphria plans to expand in Canada

Regarding the expansion plans after Cannabis 2.0, Aphria mentioned that its entry into new product markets, especially vapes, edibles, peas, beverage, and topicals, will be done in a strategic and thoughtful manner. The company plans to launch premium cannabis extracts to disposables ByCans [ph] and the PAX Era device and platform. Aphria is concerned about vaping issues in the US. The company thinks that a regulated market will reduce illicit activities.

Even though Aurora Cannabis has the capacity and strategies to expand, its rising debt burden is a huge concern for investors. To learn more, read Aurora Cannabis: Why Investors Must Watch Its Debt.

In comparison, Aphria has a lower debt burden. The company has a net debt of 9.6 million Canadian dollars. Canopy Growth also has a lower debt burden than Aurora Cannabis. Notably, Canopy Growth is backed by a huge investment from Constellation Brands (STZ). The investment allows Canopy Growth to strategize about expansion. The company announced that new beverage products will be available by December. To learn more, read Canopy Growth Is Set to Launch New Products. The company thinks that it will be able to hit its run-rate target of 1 billion Canadian dollars sales in fiscal 2020.

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Aphria’s management said in its first-quarter earnings call, “We ended the quarter with a strong balance sheet and a cash position including $464 million of cash and marketable securities, as they say, cash is king.” Analysts also expect Aphria’s fiscal 2020 revenues to be around 595 million Canadian dollars.

Peers’ plans

Canopy Growth, Aurora Cannabis, and Cronos Group have expansion plans. The companies could expand freely in the US market after marijuana is legal. The lack of federal marijuana legalization poses legal and regulatory issues for these companies. Mexico extended its legalization.

Aphria closed with a gain of 0.91% on Wednesday. Meanwhile, Aurora Cannabis and HEXO closed with a gain of 0.28% and 0.4%. Cronos Group and Canopy Growth stock closed with a loss of 0.8% and 1.9%.

To learn how to invest in Aurora Cannabis, Canopy Growth, and other marijuana stocks, read Cannabis Investment: How to Buy ACB, CGC, and Others.

For more cannabis-related news and updates, be sure to check out 420 Investor Daily.


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