Aphria’s Ratings and Target Prices after Q2 Earnings

On Tuesday, Aphria (NYSE:APHA) reported its earnings for the second quarter of fiscal 2020. The company beat analysts’ EBITDA estimates. The second quarter was Aphria’s third consecutive quarter with positive EBITDA. However, the company missed analysts’ revenue estimates. Aphria’s management lowered its fiscal 2020 guidance due to the delay in the opening new stores, a temporary ban on vape products in Alberta, lower revenue growth in Germany, and increased expenses from third-party supplies. The increased expenses were due to a delay in licensing the Aphria Diamond facility. To learn more, read Aphria Cuts 2020 Guidance, Stock Falls.

Aphria stock fell due to weak sales and its lower fiscal 2020 guidance. On Tuesday, the stock fell to a low of 6.37 Canadian dollars before closing at 6.49 Canadian dollars—a fall of 8.6% from its previous closing price. Let’s look at analysts’ recommendations after Aphria’s second-quarter earnings.

Analysts’ recommendations for Aphria

Despite Aphria lowering its fiscal 2020 guidance, CIBC upgraded the stock from “underperformer” to “neutral.” Overall, analysts are still bullish on the stock. Among the 14 analysts that follow the stock, ten recommend a “buy,” while four recommend a “hold.” None of the analysts recommend a “sell.” Aphria received increased coverage in the last 12 months. In January 2019, only nine analysts covered the stock.

Let’s look at analysts’ recommendations for Aphria’s peers.

Analysts’ target prices

Following Aphria’s second-quarter earnings, CIBC raised its target price, while Haywood Securities cut its target price. CIBC increased its target price from 6.50 Canadian dollars to 7 Canadian dollars. Haywood Securities lowered its target price from 11.75 Canadian dollars to 10.25 Candian dollars. As of Tuesday, analysts have a consensus target price of 11.96 Canadian dollars, which implies a 12-month return potential of 84.3%.

Since April 2019, analysts’ consensus target price has been falling. Since then, the consensus target price has fallen by 28.7%. Weakness in the cannabis sector might have prompted analysts’ to cut their target prices. Aphria reported a strong performance in the fourth quarter of fiscal 2019 and the first quarter of fiscal 2020.

As of Tuesday, HEXO and Cronos Group were trading at a discount of 25.9% and 16.9% from their respective target price. However, Canopy Growth was trading 7.6% higher than analysts’ consensus target price.

Analysts’ opinions

Jefferies has a “buy” rating and a target price of 11 Canadian dollars. Notably, Jefferies was bullish after Aphria’s second-quarter earnings. As reported by MarketWatch, Owen Bennett of Jefferies said, “On sales trends, recreational sales were up 46% QoQ with volumes up 68%, while they also saw a need to buy wholesale in the quarter due to demand outstripping supply.” He also said, “This bodes well for further supply due to come online from the Diamond facility, and should give confidence that Aphria’s products will continue to take share.”

As reported by MarketWatch, CIBC analysts John Zamparo and Krishna Ruthnum are also bullish on the stock. They wrote in their research note that despite Aphria’s ongoing high capital expenditure and working capital investments, its balance sheet looks strong. They were encouraged by Aphria’s market share gains.