OrganiGram: What Do Analysts Recommend Right Now?

As of February 28, OrganiGram Holdings (NASDAQ:OGI) was trading at 2.98 Canadian dollars—a fall of 6.6% since the beginning of this year. Despite the fall, the company has outperformed its peers and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ). Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC), and Cronos Group (NASDAQ:CRON) have fallen by 35.1%, 7.8%, and 21.9% year-to-date, respectively.

On January 14, OrganiGram reported an impressive first-quarter performance, which led to a rise in the company’s stock price. Last month, the company rolled out its Cannabis 2.0 products, vape pens, and cannabis-infused chocolate. However, there’s a weakness in the cannabis sector and the broader equity market due to the coronavirus outbreak. The weakness has dragged OrganiGram stock down. During the same period, HMMJ and the S&P 500 Index fell by 15.5% and 8.6%, respectively. Let’s look at analysts’ recommendations for OganiGram in March.

OrganiGram: What Do Analysts Recommend Right Now?

Analysts’ target price for OrganiGram

In the above graph, you can see that analysts’ consensus target price has declined since July 2019. In July, analysts’ consensus target price was 11.98 Canadian dollars. However, analysts’ consensus target price has fallen to 6.28 Canadian dollars as of Sunday. The target price has fallen 47.6% from analysts’ target price in July 2019. The new target price represents a return potential of 110.9% from its stock price of 2.98 Canadian dollars on February 28.

Since the beginning of this year, Jefferies, Haywood Securities, and CIBC have reduced their target prices. On January 2, Jefferies lowered its target price from 8.20 Canadian dollars to 5.0 Canadian dollars. However, Jefferies raised its target price to 5.5 Canadian dollars after OrganiGram reported its first-quarter earnings. Meanwhile, Haywood lowered its target price from 7.50 Canadian dollars to 6.50 Canadian dollars. CIBC cut its target price from 9 Canadian dollars to 5 Canadian dollars.

As of February 28, Aurora Cannabis, Canopy Growth, and Cronos Group were trading at a discount of 33.5%, 28.2%, and 54.0% from their respective target prices.

Analysts’ ratings

Wall Street is bullish on OrganiGram. Among the 16 analysts that follow the stock, 75% recommend a “buy,” 18.8% recommend a “hold,” and 6.3% recommend a “sell.” On January 9, Raymond James downgraded the stock from “outperform” to “market perform.”

While speaking with BNN Bloomberg, Bruce Campbell of StoneCastle Investment reiterated his bullish views on OrganiGram, as reported by Cantech Letter on February 15. He praised OrganiGram’s good execution for its strong first-quarter performance. He also said that the company’s production facility allows it to produce cannabis products at a lower price. OrganiGram has introduced Cannabis 2.0 products, which include vape pens and cannabis-infused chocolate. On the introduction of Cannabis 2.0 products, he said, “We’ll really start to see over the next two quarters what the sales are like but if it’s anything like what they’ve done with their other products it should be fairly strong.”

Campbell doesn’t think that many cannabis players will survive over the next five years. However, he’s optimistic about OrganiGram. He said that StoneCastle Investment owns and continues to hold OrganiGram.

Peer comparison

  • Wall Street favors a “hold” rating for Aurora Cannabis. Among the 20 analysts that follow the stock, 14 recommend a “hold.” Read Why Did Cowen Downgrade Aurora Cannabis? to learn more.
  • Among the 21 analysts that follow Canopy Growth, 12 recommend a “hold” rating. Read Should You Consider Buying Canopy Growth? to learn more.
  • Wall Street also favors a “hold” rating for Cronos Group. Among the 13 analysts, seven recommend a “hold.”

My take on OrganiGram

The glut in cannabis supplies and thriving black market sales have been putting pressure on cannabis products’ prices. However, OrganiGram produces cannabis products at a low cost compared to its peers. So, I expect unfavorable pricing to have a lower impact on the company. Also, OrganiGram reported a positive EBITDA in the last quarter. With the introduction of Cannabis 2.0 products, I expect the company’s EBITDA to improve more. Overall, I’m optimistic about OrganiGram.