Some thoughts in blue --->>> Aphria price target raised by Cantor Fitzgerald on merger upside • 9:31 AM
Cantor Fitzgerald raises the price target of Aphria Inc, (APHA +11.3%) to C$26.00 from C$15.25 with an Overweight rating noting that ‘other reasons were at play’ for shares to gain 20% despite what the analyst felt as ‘disappointing’ earnings results for Q3 FY21.
Impressive but not for all of the reasons below.
With November quarter earnings and revenue beating the estimates, Aphria shares rose ~21.1% yesterday. Irrational exuberance took over.
The analyst Pablo Zuanic notes that with Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON) valued at 18-21x CY21 EV/sales, Aphria has value given that Aphria and Tilray combination trades at 13x despite ‘being #1 in the Canadian market’ with ‘the optionality of a future CPG partner.’ This is the biggest mistake to base the new PT on. Canopy and Cronos are insanely overvalued for non-operational reasons. Aphria will be valued based on fundamentals. The PPS will rise accordingly. Canopy and Cronos will collapse if Aphria keeps executing and the other two keep fumbling the ball. Smart money will gravitate to Aphria.
Citing that ‘30-40x CY22 EBITDA is not unreasonable for the new company’ given the ‘global opportunities and domestic aspiration,’ taking the midpoint, the analyst derives a price target of C$26 for Aphria, ~69.6% above yesterday’s close at C$15.33. That might be a reasonable thought if the EBITDA is correct. Remember that it is based on $100M synergistic expense reductions. Will they execute on them 100%? If that happens, that will truely be a WOW!
Aphria and Tilray (NASDAQ:TLRY) merger is scheduled to close in second quarter of 2021.
AI
