Organigram Holdings: Why Analysts Are Bullish

Amid weakness in the cannabis sector, Organigram Holdings (OGI) stock is up 4.4% this month as of October 23. Meanwhile, during the same period, the ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) have fallen 18.9% and 23.9%, respectively. An upgrade from Jefferies and positive commentary from Raymond James appear to have raised Organigram’s stock price.

Organigram Holdings: Why Analysts Are Bullish

Analysts’ ratings

On October 23, 14 analysts were covering Organigram. Last month, CIBC and Oppenheimer initiated coverage on the stock with “outperform” and “perform” ratings, respectively. Earlier this month, on October 11, Jefferies upgraded the stock from “hold” to “buy.” A day earlier, Raymond James reiterated its “buy” rating on the stock.

Overall, four analysts have given the company “strong buy” ratings, while ten have given it “buy” ratings. No analysts have given it “holds” or “sells.”

Let’s look at analysts’ ratings for OGI’s peers:

Analysts’ opinions on Organigram

As reported by The Fly on October 11, Jefferies analyst Owen Bennett stated that the sell-off in Organigram had lowered its valuation multiple, which prompted him to upgrade the stock.

On October 10, Rahul Sarugaser of Raymond James wrote in a client note that the cannabis sector was facing pricing pressure, which would suit low-cost producers such as Organigram, according to Cantech Letter. Citing Statistics Canada data, he said that cannabis prices had fallen 5.9% in the second quarter to 10.65 Canadian dollars per gram. In the first quarter, prices were 10.23 Canadian dollars per gram.

Sarugaser expects companies with higher production costs, such as Tilray and Canopy Growth, to struggle. He added that Aurora Cannabis and Aphria, which are considered to have lower production costs among the top five cannabis companies, can only expect to achieve gross margins of 50%. He favors Organigram, which has the lowest production expenses after Village Farms at 1.00 Canadian dollar per gram.

Sarugaser expects Organigram to report revenue and EBITDA of 97 million Canadian dollars and 36 million Canadian dollars, respectively, in 2019. For 2020, he expects the company to report EBITDA of 87 million Canadian dollars and revenue of 219 Canadian dollars.

The latest price target for Organigram

Organigram’s consensus price target has fallen from 11.62 Canadian dollars on September 23 to 10.78 Canadian dollars. The new price target implies a 12-month return potential of 126.8%. PI Financial and Jefferies lowering their price targets appear to have reduced the consensus price target for the company. On October 15, PI Financial cut its price target from 12 Canadian dollars to 7 Canadian dollars. Also, Jefferies lowered its price target from 10.50 Canadian dollars to 8.2 Canadian dollars on October 11.

On October 23, OGI’s peers Aurora Cannabis, Canopy Growth, and Aphria were trading at discounts of 77.5%, 46.0%, and 95.5%, respectively, to their price targets.

YTD stock performance

Despite its recent rise, Organigram is down 1.9% this year as of October 23. However, the company has outperformed its peers. During the same period, Aurora Cannabis, Canopy Growth, and Aphria have fallen 28.9%, 22.7%, and 15.5%, respectively.

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