Tilray Analysts On The Sidelines Despite Solid Earnings

Canadian cannabis companies Tilray Inc. TLRY and Aphria Inc. APHA have agreed to a merger.

Meanwhile, Tilray announced strong fourth-quarter results, with meaningful revenue growth and margin expansion.

The Tilray Analysts:

• Michael Lavery of Piper Sandler downgraded the rating from Overweight to Neutral, while raising the price target from $15 to $26.
• Scott Fortune of Roth Capital Partners maintained a Neutral rating, while raising the price target to $25.
• Pablo Zuanic of Cantor Fitzgerald maintained a Neutral rating and a price target of $30.25.

• See also: How to Buy Tilray Here (ACB) Stock 

The Tilray Thesis: “We believe Tilray's announced merger with Aphria can help build its scale and benefits from medical sales growth in the EU," Lavery wrote in the downgrade note. "We expect better profitability, helped by contributions from Aphria, deal synergies, and growth in higher-margin international medical sales."

Lavery expects US marijuana to be "federally permissible" within one to two years, and as a result, there is still "little visibility on Tilray's path to enter US THC markets."

With Tilray’s shares up 280% year to date, “we do not see upside to current valuation,” he added.

Commenting on Tilray’s fourth-quarter results, Fortune wrote, “We are encouraged by the 25% growth in cannabis sales which saw strength from Germany, and the international segment contribute 23% of 2020 sales. We see upside in the model from a cost savings standpoint if the announced merger with Aphria goes smoothly, but maintain Neutral on a challenging Canadian market and valuation.”

“Based on better-than-expected 4Q cannabis trends (sales and EBITDA), we could view the PT more positively, but we prefer to leave it unchanged until the 10-K is out and we have seen Hifyre scanner data for all of February. We continue to see upside from the merger, but we think APHA is the beer vehicle for investment in the future combined entity,” Zuanic noted.