Aurora and Aphria Look Attractive for Cantor Fitzgerald

On May 29, Canopy Growth (TSE:WEED) reported its fourth-quarter earnings. For the quarter, the company missed analysts’ revenue and EBITDA expectations. Also, the company’s management withdrew its previously stated timeline for achieving positive EBITDA. The company’s stock price fell over 20% on May 29 due to its weak fourth-quarter performance and the withdrawal of the timeline. Canopy Growth is one of the prominent companies in the cannabis sector. So, the company’s results dragged the sector down. On May 29, Aurora Cannabis (NYSE:ACB), Aphria (NYSE:APHA), and OrganiGram Holdings (NASDAQ:OGI) fell by 9.1%, 2.2%, and 7.0%, respectively.

Today, MarketWatch reported that Pablo Zuanic of Cantor Fitzgerald reiterated its “overweight” rating for Aurora Cannabis and Aphria. He stated that both of the companies had strong B2B recreational sales for the quarter ended in March. Aurora Cannabis even leads its peers in domestic medical sales. He said that after yesterday’s fall, both of the stocks are trading at discount valuation multiples despite having strong growth prospects.

On Canopy Growth, Zuanic stated that weak sales in the fourth quarter were company-specific. For the quarter ended in March, Canopy Growth’s recreational sales fell 28% sequentially, while the industry grew by 18%. All of the cannabis companies covered by Cantor Fitzgerald reported double-digit growth. He’s also concerned about the speed that Canopy Growth is burning its cash.

Other analysts’ recommendations for Aurora and Aphria

Analysts favor a “hold” rating for Aurora Cannabis. Among the 16 analysts, 62.5% recommend a “hold,” 12.5% recommend a “buy,” and 25% recommend a “sell.” As of May 29, analysts’ consensus target price was 14.24 Canadian dollars. The target price represents a fall of 26.1% from the current stock price. Last month, Aurora Cannabis reported an impressive third-quarter performance. Despite the strong performance, analysts gave a mixed opinion on the stock. To learn more, read Why Analysts Still Aren’t Convinced about Aurora Cannabis.

Analysts favor a “buy” rating for Aphria. Among the 12 analysts, 75% recommend a “buy,” while 25% recommend a “hold.” None of the analysts recommend a “sell.” As of May 29, analysts’ consensus target price was 8.26 Canadian dollars, which represents a 12-month return potential of 42.1%.

Stock performance

Since Aurora Cannabis reported its third-quarter earnings on May 14, its stock has more than doubled. Despite the surge, the company is still trading 42.4% down YTD. The weak second-quarter performance, rising debt, concerns about the dilution of equity, and weakness in the cannabis sector dragged the stock down. On the other hand, Aphria has lost 14.3% of its stock value this year as of May 29. The company reported an excellent third-quarter performance in April.

I have been bullish on Aphria. I’m still not convinced about Aurora Cannabis’s turn around. I’m concerned about the company’s high expenses and higher inventory levels.