Cannabis stocks Tilray Inc. TLRY and Aurora Cannabis Inc. ACB traded lower on Monday amid a broad market sell-off. One Wall Street analyst upgraded the two stocks and said they may finally be priced at a level that accurately reflects their true value.
The Analyst: On Monday, Jefferies analyst Owen Bennett upgraded Tilray from Underperform to Hold. He cut his price target from $6 to $5.60.
Bennett also upgraded Aurora from Underperform to Hold and cut his price target from $10.51 to $6.53.
The Thesis: In the upgrade notes, Bennett said Tilray’s valuation and consensus estimates have finally reached reasonable levels with the stock down another 82% in the past year.
Bennett said Tilray’s top-line growth outlook in the U.S. and Canada gives investors little reason for excitement in the near-term. While the company has opportunities in Europe, Bennett said it’s too early for investors to get reliable visibility overseas.
For Aurora, Bennett said the company’s progress on cost cutting so far this year has been impressive, but the company is still facing near-term liquidity risks given its challenged balance sheet.
“Given these dynamics, EBITDA +ve being pushed to Q2 FY21 vs Q1 FY21, and the need to continue to invest behind top line momentum, we fully expect ACB to use the C$275mn remaining on its ATM, and with a further raise beyond this as likely,” Bennett said in the upgrade note.
In addition, Bennett said the Jury is still out on the company’s new CEO.
Benzinga’s Take: Given all the uncertainty that remains in the cannabis space in the near-term, it may be wise for cannabis bulls to take a diversified approach to investing.
Consider buying a basket of Canadian legal producers like Aurora and Tilray as well as U.S. multi-state operators that have high-quality balance sheets and leading market shares.
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