Jefferies Sees 60-Percent Upside In Aphria Shares, Says Buy The Dip

After a red-hot start to 2019, Canadian cannabis producer Aphria Inc APHA has run out of steam, tumbling more than 31 percent in the past three months.

Despite the recent weakness, one Wall Street analyst said Friday that the stock has 30-percent upside potential. 

The Analyst

Jefferies analyst Owen Bennett initiated coverage of Aphria with a Buy rating and CA$15 ($11.14) target.

The Thesis

A large disconnect exists between Aphria’s impressive market positioning and the stock’s valuation, Bennett said in the Friday initiation note. (See his track record here.)

In terms of long-term cannabis market positioning, Aphria trails only Canopy Growth Corp CGC and Aurora Cannabis Inc ACB on Jefferies’ strategic scorecard, the analyst said. While Canopy and Aurora shares are each up more than 65 percent year-to-date, Aphria shares are up just 22 percent, he said. 

One of the factors weighing heavily on Aphria shares in recent months: allegations by a short seller that Aphria inflated its assets and made insider transactions, Bennett said. 

Since the accusations surfaced, a special committee's review found no evidence of asset inflation, and Aphria has severed its questionable relationships, he said. 

“With these issues now seemingly cleared up, as the company continues to execute, and with likely positive developments on US optionality/Canadian derivatives, we see significant re-rating." 

Looking ahead, Bennett said there’s a strong chance of a positive near-term catalyst for Aphria.

The company could soon announce a vape partnership with Pax in Canada and/or the acquisition of non-cannabis assets in the U.S. that can be utilized at a later date, according to Jefferies.

Price Action

Aphria shares were rallying by 15.39 percent to $7.39 at the time of publication Friday. 

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