Tilray’s Q4 Earnings Force Analysts to Cut Its Target Price

Tilray (NASDAQ:TLRY) reported dismal results for the fourth quarter of fiscal 2019 on Tuesday. The losses widened in the fourth quarter due to continued struggles in the cannabis space. Analysts went bearish about Tilray stock and cut the target price. The stock fell 15% yesterday. Currently, Tilray stock is trading close to its 52-week low of $13. Could 2020 be good for the company and the cannabis sector? Let’s see what management said in the fourth-quarter earnings call.

Analysts forced to cut Tilray’s target price

Tilray missed analysts’ revenue estimates. The company had to bear a non-cash impairment charge of $112.1 million, which led to the losses. The company’s dismal fourth-quarter earnings and deep losses forced many analysts to lower the stock’s target price.

  • Compass Point cut the target price to $17 from $24.
  • Benchmark cut the target price to $28 from $40.
  • Eight Capital downgraded Tilray stock to “neutral” from “buy” and cut the target price to $17 from $26.
  • Alliance Global Partners cut the target price to $15 from $18.
  • Stifel lowered the target price to $14.5 from $18.
  • RBC cut the target price to $19 from $23.
  • BMO cut the target price to $15 from $27.
  • Cowen and Company lowered the target price to $15 from $20.
  • Piper Sandler cut the target price to $20 from $29 with an “overweight” rating.

Currently, the average target price on the stock is $16.87, which implies a 30% upside potential as of yesterday’s closing price. The stock closed at $13.02 yesterday. There has been a drastic reduction in the average target price from $25.64 before the earnings results. As of today, 19 analysts cover Tilray stock. Among the analysts, 15 recommend a “hold”—compared to 13 earlier. Meanwhile, three analysts recommend a “buy”—compared to four earlier. None of the analysts recommend a “strong-buy”—compared to one earlier. One analyst still recommends a “sell.”

Read What Do Analysts Recommend for Green Growth Brands? and OrganiGram: What Do Analysts Recommend Right Now? to learn more about analysts’ recommendations for other cannabis companies.

Key takeaways from Tilray’s earnings call

Currently, many analysts are bearish about Tilray stock. The stock doesn’t paint a good picture of the company. Did analysts only cut the target price for the stock due to the losses? Earlier, I discussed how investors should focus on the positive and negative comments during an earnings call. The comments give an idea about where the company stands and how it plans to proceed.

On the positive side, Tilray’s management stated that the market has received its variety of Cannabis 2.0 products well. Tilray launched the following recreational products.

  • Chowie Wowie is milk chocolates with THC and CBD varieties.
  • Tilray launched Canaca, which is pure cannabis.
  • The company launched all-in-one vape pens and cartridges.
  • Marley Natural is pure CO2 extracted cannabis vape cartridges.
  • Everie includes CBD infused tea and sparkling beverages.

Tilray CEO Brendan Kennedy thinks that the cannabis industry is still in a growth stage. Global views regarding medical and recreational cannabis are constantly changing. He thinks that Tilray is prepared to capitalize on the opportunity due to its global mark in the cannabis space. Despite the volatility in the cannabis space last year, the company’s management still thinks that it has long-term opportunities in Canada.

Tilray’s management expects the short-term struggles to continue. However, the company will focus on long-term growth. Legal cannabis retail sales could grow to 4.5 billion Canadian dollars by 2021.

2020 outlook

Tilray expects to grow its greenhouse and processing capacity in Portugal by 340% in 2020. Also, the company made a strategic deal in Portugal to research cannabis-derived medical products. In the US, due to FDA restrictions, the company is downsizing its investment until it receives more clarity. Tilray is positive about how Cannabis 2.0 has turned out. However, the company thinks that it will take a while for the complete conversion of illicit cannabis to the legal market.

Tilray CFO Mark Castaneda said, “Because we are in the early stages of this industry, there’s a lot of uncertainty regarding forward revenue forecasts, which is why we structure our acquisition with a large mix of earn-outs and other performance-based metrics.”

The company is confident that it has enough capital to advance with its growth plan and hit profitability or a positive EBITDA by the fourths quarter of 2020. Tilray also expects its cash flow to be positive in 2021.

MedMen (OTCMKTS:MMNFF) reported deep losses in the second quarter of fiscal 2020 due to declining revenues, rising black market sales, and fewer legal stores.

At 10:52 AM ET today, Tilray stock has fallen 4.0%, while MedMen stock has fallen 1.11%. Meanwhile, OrganiGram (NASDAQ:OGI) and Green Growth Brands (NYSE:GGB)(OTCMKTS:GGBXF) have risen 0.47% and 3.3%, respectively.