Tilray Analyst Cuts Price Target By 72% After Offering At 'The Worst Of Times'

Cantor Fitzgerald slashed its Tilray TLRY price target Monday in the wake of the Nanaimo, Canada-based cannabis company's pricing of a $90.4-million equity offering.

The Tilray Analyst

Pablo Zuanic maintained a Neutral rating on Tilray and lowered the price target from $17.50 to $4.90.

The Tilray Thesis

While Zuanic said he understands the need to raise funds, the analyst said he's surprised Tilray would choose "the worst of times" to price the offering. (See his track record here.)

The analyst weighed whether other cannabis companies will follow suit, and said that in the case of Aurora Cannabis ACB, the company is likely to rely on cost cuts, positive EBITDA and lower capex to get by. 

"The boom and bust in Canadian cannabis stocks has scared away a good number of investors," Zuanic said, but added that Cantor is comfortable with underlying trends. 

The sell-side firm has Overweight ratings on Aphria Inc APHA, OrganiGram Holdings Inc OGI and Aurora; Neutral ratings on Canopy Growth Corp CGC and Tilray; and an Underweight on Hexo Corp HEXO. 

Converted warrants and share issuance will raise the share count of Tilray stock by 38 million, representing a 37% dilution, Zuanic said. 

Cantor counted the warrants while valuing the stock, he said: "We believe if an investor has a $6 PT for TLRY, they should factor in the warrants given the strike price is $5.75."

The sum-of-the-parts valuation relies on sales multiples, the analyst said. 

“We value the domestic rec business at 4x, international med at 7x, domestic med at 2x, hemp food and CBD at 2x, and bulk at 1x; our approach yields a 12mo PT of $4.90."

TLRY Price Action

Tilray shares were trading 18.26% lower at $3.29 at the time of publication. 

Photo courtesy of Tilray.