On October 15, Aphria (APHA) reported its earnings for the first quarter of fiscal 2020. For the quarter, the company’s revenue came in lower than expected. However, its EBITDA and EPS beat analysts’ expectations. Aphria’s impressive first-quarter performance led its stock price to rise. On October 22, the company was trading at 6.31 Canadian dollars, which implies a rise of 1.6% since October 15.
The latest price target for Aphria
Despite Aphria’s impressive first-quarter performance, Cormark, Eight Capital, and CIBC have lowered their price targets. Cormark cut its price target from 14 Canadian dollars to 8 Canadian dollars. Eight Capital has lowered its price target from 11 Canadian dollars to 9 Canadian dollars. CIBC also reduced its price target from 7 Canadian dollars to 6.5 Canadian dollars.
Analysts’ consensus price target has declined from 14.93 Canadian dollars in the last month to 12.96 Canadian dollars. The weakness in the cannabis sector due to the recent vaping-related deaths, as well as the expectation of weaker revenue growth in the second half of 2019, appear to have prompted analysts to lower their price targets. The new consensus represents a 12-month return potential of 105.4%.
On October 22, Aurora Cannabis (ACB), Canopy Growth (WEED) (CGC), and Cronos Group (CRON) were trading at discounts of 77.5%, 66.4%, and 49.6%, respectively, from their respective price targets.
What are analysts saying?
After Aphria reported its first-quarter performance, Justin Keywood of GMP has reiterated his “buy” rating. As reported by MarketWatch, he stated that the company would remain on GMP’s Best Ideas List. Keywood wrote in his research note, “Given the recent broader sector correction and indications of industry transition pain, we view Aphria’s Q1 results as solid.”
Keywood added, “The results are also consistent with our recent scuttlebutt, including that Aphria has greatly improved in how it operates, along with good customer pull-through for its brands.”
As reported by MarketWatch, Owen Bennett of Jefferies is bullish on Aphria and has maintained his “buy” rating and a price target of 11 Canadian dollars. He stated that Aphria’s increased market share, continued profitability, and the management reiterating its sales guidance are the positive outcomes from its first-quarter earnings.
Brett Hundley of Seaport Global Securities has termed Aphria’s first-quarter performance as “solid,” reported MarketWatch. He maintained his “buy” rating and his price target of 8 Canadian dollars for the stock.
Analysts’ ratings for Aphria
Aphria has not received any rating changes since it reported its first-quarter earnings. On October 22, three analysts are favoring a “strong buy” rating, while six analysts are recommending a “buy” rating. Of the remaining three analysts, two gave a “hold” rating, while one rated the company as a “sell.”
Let’s look at analysts’ rating for Aphria’s peers:
- For Aurora Cannabis, eight of the 17 analysts have rated it as a “buy.” Aurora plans to report its first-quarter earnings next month. For analysts’ expectations, please read Aurora Cannabis: What to Expect from Its Q1 Earnings.
- Analysts are bullish on Canopy Growth. Of the 21 analysts that follow the stock, 11 rated it as a “buy.” For more, please read Canopy Growth: Analysts’ Target Prices and Ratings.
- Eight of 13 analysts that cover Cronos Group stock recommend a “hold” rating.
Tracing the trend
From the above graph, we can see that Aphria has received increased coverage in the last 12 months. On October 22, Aphria was covered by 12 analysts compared to seven in October 2018.
Analysts’ consensus price target has fallen significantly during the same period. In October 2018, analysts’ consensus price target stood at 24.29 Canadian dollars. The analysts’ current average price target is 46.6% lower.
YTD stock performance
After reporting strong performance last year, the cannabis sector has underperformed the broader equity market this year. Among the marijuana ETFs, the Horizons Marijuana Life Sciences Index ETF (HMMJ) and the ETFMG Alternative Harvest ETF (MJ) have fallen 25.8% and 20.5%, respectively. Meanwhile, the S&P 500 Index rose 19.5% during the same period.
Individually, Aphria, Aurora Cannabis, Canopy Growth, and Cronos Group have fallen by 19.6%, 30.8%, 24.6%, and 24.5%, respectively.
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