Why Did Bank of America Upgrade Aphria and OrganiGram?


Mar. 23 2020, Updated 6:09 a.m. ET

On March 19, Bank of America upgraded Aphria (NYSE:APHA) and OrganiGram Holdings (NASDAQ:OGI) due to the increased demand for cannabis. As reported by Bloomberg, Christopher Carey of Bank of America stated that with many people isolating themselves in their homes, the demand for cannabis has increased. In a research note, he wrote, “Our checks across North America were consistent: regardless of region, cannabis purchases have accelerated.” He also said, “While likely on pantry loading, it’s not unreasonable to think there will be some boost to per capita consumption as people stay at home longer.”

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Carey thinks that Aphria could capture a higher proportion of the increased demand as its peers struggle. He upgraded the stock from “neutral” to “buy.” However, he cut its target price from 8 Canadian dollars to 5 Canadian dollars citing the weakness in the global equity market. The new target price represents a 12-month return potential of 47.1%.

BOA upgrades OrganiGram to “neutral”

Carey also upgraded OrganiGram from “underperform” to “neutral,” while keeping its target price unchanged at 2.50 Canadian dollars. He expects the company to post consistent sales and profitability. He thinks that unlike its peers, OrganiGram has enough liquidity and strong cash flows. Bloomberg also added that cannabis is becoming a defensive category like tobacco and alcohol. Carey’s target price represents a 12-month return potential of 13.1%.

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BOA downgrades Tilray

Meanwhile, Carey thinks that Tilray’s (NASDAQ:TLRY) recent new equity offering at a steep discount is negative for the company. He thinks that dilution during these tough conditions is a significant confidence breaker. He downgraded Tilray from “neutral” to “underperform.” He also lowered its target price from $16 to $2. The new target price represents a fall of 48.1% from its stock price on Thursday.

Other analysts’ recommendations for these stocks

Overall, analysts are bullish on Aphria. Among the 14 analysts that follow the stock, ten recommend a “buy,” while four recommend a “hold.” None of the analysts recommend a “sell.” Meanwhile, as of Thursday, analysts’ consensus target price is 11.07 Canadian dollars, which represents a 12-month return potential of 225.5% from its stock price on Thursday. Last week, Stifel initiated coverage on the stock with a “hold” rating. To learn more, read Stifel Initiated Its Coverage on Aphria and HEXO.

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Analysts are also bullish on OrganiGram. Among the 16 analysts, 12 recommend a “buy,” while four recommend a “hold.” Analysts’ consensus target price is 6.28 Canadian dollars, which represents a return potential of 184.3% from its closing price on Thursday. Read OrganiGram: What Do Analysts Recommend Right Now? to learn more.

Meanwhile, analysts favor a “hold” rating for Tilray. Among the 18 analysts, 13 recommend a “hold,” three recommend a “buy,” and two recommend a “sell.” As of Thursday, analysts’ consensus target price was $11.77. The target price represents a 12-month return potential of 205.8%.

Aphria, OrganiGram, and Tilray’s stock performance

Along with the strengthening cannabis sector, Bank of America’s upgrade appeared to raise Aphria stock by 11.8% yesterday. On the same day, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) rose by 6.0% and 8.7%, respectively. Despite the rise on Thursday, Aphria is trading 49.9% lower YTD (year-to-date).

Meanwhile, Bank of America’s upgrade didn’t have much of an impact on OrganiGram’s stock price. On Thursday, the stock rose by 0.5%. OrganiGram has lost 30.7% of its stock price YTD. Tilray lost 85.6% of its stock value by Wednesday. However, the stock rose 55.9% on Thursday to $3.85. The company is trading 77.5% lower YTD.


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