Friday, February 19, 2021 10:02:40 PM
TLRY stock is likely to do well over the next year once its merger with Aphria closes
By Mark R. Hake, CFA Feb 19, 2021, 2:43 pm EST
Tilray (NASDAQ:TLRY) just reported its Q4 and full-year 2020 earnings on Feb. 17. The most important news was that the company finally was able to achieve EBITDA (earnings before interest, taxes, depreciation,and amortization) profitability. This news, along with the upcoming merger with Aphria (NASDAQ:APHA), could push TLRY stock up over the next year.
https://investorplace.com/2021/02/tlry-stock-will-be-largest-cannabis-stock-once-it-merges-with-aphria/
Tilray reported that it achieved its stated goal of becoming breakeven or positive EBITDA. It made $2.2 million in adjusted EBITDA during Q2. This is compared to negative $35.3 million in adjusted EBITDA last year.
The company did this by both raising revenue by 26% over last year and by cutting costs by $57 million over that period. Tilray said it now operates with a “more focused, efficient and competitive cost structure.”
It did not produce a cash flow statement in its press release. That will come out with the 10-Q in several days. However, I suspect that it shows that the company still is burning cash. This is because EBITDA does not include things like capex spending, working capital changes, debt and tax payments.
Merger With Aphria
Tilray’s merger with Aphria, announced in December and set to close in Q2, will create the largest cannabis company. The company says that the “new Tilray” will have synergies of over 100 million CAD in cost savings from both companies. This will bring significant value to the combined company.
If those synergies work out within the next year, that could potentially mean roughly $80 million in adjusted EBITDA. Assuming half of that leads to free cash flow (FCF), along with 20% growth, the FCF of the combined company could be as high as $50 million.
Therefore, assuming the merger results in a new market capitalization of approximately $13 billion, the FCF yield of the new company would be 0.38%. That is a fairly high valuation. But the market will likely realize that once the company is FCF positive then it is likely to grow over time.
In several years, if the combined company’s FCF were to triple to, say, $150 million, the market value of the two would have a 1.15% FCF yield. This means that at today’s price the company is probably fairly valued.
However, the market is going to want to see more of this. For TLRY stock to move higher after the merger, the combined companies would have to be much more profitable than today.
What to Do With TLRY Stock
Short interest in TLRY stock is now at 20% of the public float, according to Yahoo! Finance. That is a very high level, although it is down from 36.6% over a week ago.
This is because short-sellers think the combined merger will likely lead to further losses. Or, even worse, that the merger may not even occur at all. Although I doubt the latter, it is true that Tilray and Aphria are going to have to show how profitable they can become after the merger.
Others think the merger will benefit from President Joe Biden’s administration loosening up restrictions on the purchase and sale of cannabis. So far nothing has happened along these lines, but it is still early.
Cantor Fitzgerald has a $30.25 price target on Tilray but said in their note that the volatility in the sector may keep investors away from TLRY stock.
Other analysts are not as sanguine on the stock. For example, Yahoo! Finance, which uses data from Refinitiv, has a much lower average price target. Their data from 11 analysts show that the average price target is just $18.25, or 36% below today’s price of $28.61.
TipRanks.com says that the average price target of 10 analysts is $19.39, or 32% below today’s price. MarketBeat reports that 15 analysts have an average target price of $18.40, implying a 36% drop in TLRY stock. In essence, no one is positive on the stock. The company has a lot to prove to analysts and investors.
Most investors will probably wait until they can see evidence of sustained profitability, not just on an EBITDA basis, but also with cash burn.
On the date of publication, Mark R. Hake does not hold a long or short position in any stock or security mentioned in this article.
Recent TLRY News
- Form 8-K - Current report • Edgar (US Regulatory) • 05/07/2024 11:00:46 AM
- 10 Barrel Brewing Introduces Pub Cerveza: a New Twist on ‘Cheap Fun.’ Series • GlobeNewswire Inc. • 05/03/2024 11:07:37 AM
- Tilray Brands Launches XMG Zero, a New ‘Better for You’ Cannabis Beverage • GlobeNewswire Inc. • 05/02/2024 11:00:00 AM
- Widmer Brothers Brewing Launches New Hefe Variety Pack With Revamped Versions of the Original American Hefeweizen • GlobeNewswire Inc. • 05/01/2024 11:00:00 AM
- Breckenridge Brewery Introduces New West Coast Style IPA ‘Ridge Runner’ • GlobeNewswire Inc. • 04/29/2024 11:00:00 AM
- Tilray Brands Celebrates Big Wins at the Craft Brewer’s Conference and 2024 World Beer Cup, the Most Prestigious Beer Competition in the World • GlobeNewswire Inc. • 04/25/2024 08:33:50 PM
- Tilray Brands Celebrates Epic 420 Weekend With Over 20,000 Fans Across the U.S. • GlobeNewswire Inc. • 04/25/2024 12:00:00 PM
- Sweetwater Brewing Unveils Modern Rebrand • GlobeNewswire Inc. • 04/25/2024 11:00:00 AM
- Good Supply Cannabis Introduces New Signature ‘Bud Squad’ Products • GlobeNewswire Inc. • 04/24/2024 11:00:00 AM
- Montauk Brewing’s Project 4:20 IPA Returns to Support Surfrider Foundation • GlobeNewswire Inc. • 04/18/2024 12:00:00 PM
- Good Supply Cannabis Brand Celebrates Earth Day and Unveils Environmental Impact of “Green You Can Feel Good About” Campaign • GlobeNewswire Inc. • 04/18/2024 11:00:00 AM
- Tilray Brands Lights Up 420 With Music Festivals and Celebrations Across The Country • GlobeNewswire Inc. • 04/17/2024 11:00:00 AM
- 10 Barrel Brewing Adds 'Juicy Drama' to Its Award-Winning HopBurst Family • GlobeNewswire Inc. • 04/11/2024 12:30:00 PM
- Montauk Brewing Releases Its First Non-Alcoholic Brew: Montauk N.A. IPA • GlobeNewswire Inc. • 04/11/2024 12:00:00 PM
- Tilray Brands, Inc. Reports Q3 Fiscal 2024 Financial Results • GlobeNewswire Inc. • 04/09/2024 11:00:00 AM
- U.S. Futures Show Mixed Movement, Crude Oil Prices Inch Up • IH Market News • 04/09/2024 10:42:21 AM
- Tilray Brands Announces 420 Activations Across Canada and Unveils Celebratory Product Lineup • GlobeNewswire Inc. • 04/04/2024 11:00:00 AM
- UPDATE – Redhook Brewery Announces New “Big Juicy Ballard” IPA and Revives IPA Daze Festival at the Brewlab on 4/20 Weekend • GlobeNewswire Inc. • 04/03/2024 06:02:00 PM
- Redhook Brewery Announces New “Big Juicy Ballard” IPA and Revives IPA Daze Festival at the Brewlab on 4/20 Weekend • GlobeNewswire Inc. • 04/03/2024 12:00:00 PM
- Tilray Medical Announces New Scientific Publication on Age-Related Patterns of Medical Cannabis Use • GlobeNewswire Inc. • 04/03/2024 11:00:00 AM
- Sweetwater Brewing Unveils New 420 Variety Pack • GlobeNewswire Inc. • 04/02/2024 11:00:00 AM
- UPDATE – Breckenridge Brewery Partners With Denver Nuggets to Launch Championship Edition Mile High City Golden Ale • GlobeNewswire Inc. • 03/28/2024 04:50:58 PM
- SweetWater Brewing Launches Hammer Red Amber Ale to Support Georgia Aquarium • GlobeNewswire Inc. • 03/28/2024 12:30:00 PM
- Breckenridge Brewery Announces Special Denver Nuggets Championship Edition Mile High City Golden Ale • GlobeNewswire Inc. • 03/28/2024 12:00:00 PM
- Tilray Brands, Inc. to Announce Third Quarter 2024 Financial Results on April 9, 2024 • GlobeNewswire Inc. • 03/28/2024 11:00:00 AM
FEATURED Cannabix Technologies Launches New Compact Breath Logix Workplace Series and Prepares for Delivery to South Africa • May 7, 2024 8:51 AM
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