Marijuana Stock Tilray Is Rising. A Bull Is Stepping Aside.
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A Tilray facility with cannabis. The stock has run up.
Patricia De Melo Moreira/AFP via Getty ImagesTilray’s fourth-quarter results beat expectations, but the stock’s recent run led a formerly bullish analyst to lower his rating.
Pointing to Tilray stock’s (ticker: TLRY) soaring valuation, Benchmark analyst Mike Hickey lowered his rating to Hold from Buy. Hickey noted the stock recently exceeded his prior $12 price target by 163%. His new rating does not include a price target. The stock has swung in the past week amid interest in cannabis stocks from Reddit’s WallStreetBets forum.
That doesn’t mean Hickey was disappointed by Tilray’s fourth-quarter report. He notes that the company beat consensus expectations, and even delivered positive adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda.
He also notes that the company’s proposed merger with Aphria (APHA) would create the world’s largest cannabis company, in terms of trailing-twelve-months pro-forma revenue. Expected pre-tax synergies of 100 million Canadian dollars (US$78.6 million) should improve the combined company’s path to profits, according to Hickey. The companies expect the deal to close in the first half of this year.
BMO Capital Markets analyst Tamy Chen raised her price target on Tilray to $22 but maintained a Market Perform rating. She notes that like its Canadian peers, lockdowns in Ontario could challenge recreational sales in the near term.
Cantor Fitzgerald analyst Pablo Zuanic noted that while the hemp food category came in short of his expectations, cannabis sales were much better than anticipated. He notes that Tilray expects to hold a 17% share of the Canadian recreation market after the merger, about seven percentage points higher than the next-largest player.
He still sees upside from the merger, but recommends investors play it by purchasing Aphria stock, rather than TIlray. Zuanic rates Tilray stock at Neutral with a $30.25 price target, and rates Aphria stock at Overweight with a C$32.50 price target.
Aphria stock was recently trading at a 45% discount to the conversion price, Zuanic notes. Each Aphria share will be exchanged for 0.84 share of the new Tilray. Post-merger, Aphria shareholders would own about 62% of outstanding Tilray shares, the companies said in December.
TIlray stock was up 1.5% shortly before noon on Thursday, while Aphria stock was up 1.8%. The S&P 500 index was down 0.7%.
Write to Connor Smith at connor.smith@barrons.com