On Tuesday, MarketWatch reported that Stifel initiated its coverage on Aphria and HEXO. Stifel analyst W. Andrew Carter gave a “hold” rating and a target price of 4.50 Canadian dollars for Aphria. Notably, the target price represents a 12-month return potential of 11.1% from its stock price of 4.05 Canadian dollars on Tuesday.
As reported by MarketWatch, Carter wrote in his research that Aphria’s revenue growth and strong balance sheet support his rating. He expects the company to post cumulative annual revenue growth of 89% over the next two years. He also thinks that the company will maintain its market share in Canada’s recreational market. However, uncertainties surrounding Canada concerned Carter.
Stifel rates HEXO as a “sell”
Meanwhile, Stifel gave a “sell” rating for HEXO with a 12-month target price of 1.15 Canadian dollars. The target price represents a return potential of 13.6% from its stock price of 1.32 Canadian dollars on Tuesday.
As reported by MarketWatch, Carter is concerned that it will be difficult for Hexo to overcome its weak cash position and a decline in management’s credibility. In his research note, he expressed skepticism about the company achieving its outlined growth. He said that the company has significant exposure to Quebec. In the region, policymakers have restrictions that limit the company’s growth potential. Also, under the liquidation scenario, Stifel has valued HEXO at 0.84 Canadian dollars per share.
Other analysts’ recommendations for APHA and HEXO
Wall Street favors a “buy” rating for Aphria. Among the 15 analysts that cover the stock, ten recommend a “buy” rating, while five recommend a “hold” rating. None of the analysts recommend a “sell” rating. As of Tuesday, analysts’ consensus target price was 11.14 Canadian dollars, which implies a return potential of 175.1%.
Since the beginning of this year, Bryan Garnier and Jefferies have lowered their target prices. Garnier cut its target price from 12.4 Canadian dollars to 6.50 Canadian dollars. Meanwhile, Jefferies lowered its target price from 11 Canadian dollars to 10.30 Canadian dollars. On January 21, Alliance Global Partners initiated coverage on Aphria with a “buy” rating and a target price of 11 Canadian dollars.
Analysts favor a “sell” rating for HEXO. Among the 17 analysts, eight recommend a “sell” rating, three recommend a “buy” rating, and six recommend a “hold” rating. Overall, analysts’ average target price is 2.35 Canadian dollars with a 12-month return potential of 77.8%. On January 28, MKM Partners downgraded the stock to “neutral” and lowered its target price to 1.50 Canadian dollars from 5 Canadian dollars. On January 2, Jefferies cut its target price from 3.80 Canadian dollars to 1.90 Canadian dollars.
This year, the cannabis sector has been going through a tough period. Falling cannabis prices, thriving black market sales, and most companies’ weak cash position dragged the sector down. Also, the coronavirus outbreak has made the situation even more difficult for cannabis companies. The ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have fallen by 29.1% and 28% YTD (year-to-date), respectively.
In January, Aphria reported its second-quarter earnings. During the quarter, the company reported a higher-than-expected EBITDA, but missed analysts’ revenue expectations. Also, the company lowered its revenue and EBITDA guidance for fiscal 2020. The lower fiscal 2020 guidance and weakness in the cannabis sector dragged the company’s stock down. So far, Aphria has lost 40.3% of its stock value YTD. Meanwhile, HEXO has fallen by 36.2% during the same period. MediPharm’s lawsuit and HEXO’s weak cash position led to a fall in its stock price.