Analysts Going Hard On Tilray, Slashing Price Targets; How Much Adj. EBITDA Really Improved?

Tilray Brands, Inc. TLRY reported its fiscal 2022 and fourth-quarter earnings results on Thursday, revealing net revenue growth of 8% year-over-year to $153.3 million.

In the reporting quarter, the Canadian cannabis giant had a net loss of $457.8 million compared to a net income of $33.6 million in the same period last year. 

Adjusted EBITDA was a gain of $11.5 million, marking the company’s 13th consecutive quarter of positive adjusted EBITDA.

Gross profit was a loss of $6.73 million compared to a gross profit of $22.49 million in the same quarter of 2021, an unfavorable decrease of 129%.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on Tilray stock but lowered the price target to $4.15 from $5.75.

The Thesis

According to the analyst, positive takeaways from Tilray’s latest financial report include the fiscal year 2023 EBITDA guidance of $70-$80 million compared to $48 million in the fiscal year 2022, projections to be free cash flow positive in the fiscal year 2023, overachieving on synergies, solid structure of the agreement with HEXO, being #1 in Germany with 20% € share, among others.

On the other hand, Zuanic also highlighted the challenging items, such as the company’s growing “complexity,” which, according to him, “may start to weigh on the stock.” The analyst believes that those looking for direct U.S. exposure have better options, such as those looking for a U.S. branded ecosystem – Canopy Growth CGC and Constellation Brands STZ platform.

By comparison, for pure international exposure, Zuanic said there are Clever Leaves CLVR, for the best position in the Canadian recreational market, Organigram OGI, and for international exposure, Aurora Cannabis ACB is a better alternative and has a positive valuation and stronger balance sheet.

Zuanic says Tilray could benefit from better disclosures, such as reporting EBITDA by divisions and clarity – revealing how much of the HEXO deal makes EBITDA.

Per Cantor’s calculations, in annualized terms, Tilray’s adjusted EBITDA improved by around $19 million, which is well below the advertised synergies of $85 million. 

Furthermore, Zuanic says that when a company’s management announces positive free cash flow guidance “at the divisional level,” they are not adjusting for things like minority interest, which is why the analyst projects negative free cash flow at the consolidated level.

“We remain Neutral, despite our growing appreciation and understanding of the company’s international presence and potential there.”

Other Analysts Take Similar Moves On Tilray Stock 

Following Tilray’s newest earnings report, on Friday, Cowen also reduced their price target to $9.00 from $23.00, reported Defense World. The outlet highlighted that several research firms have also been reducing their price target on these pot stocks, over the last couple of months. For example, on July 15th Roth Capital lowered their price target to $4.00 from $8.00; in June, Canaccord Genuity Group cut their price objective to $7.00 from $9.00, and in April, Barclays reduced their price objective to $4.50 from $8.50. 

The Price Action 

Tilray shares traded 0.88% lower at $3.39 per share during Monday’s pre-market session. 

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