Stifel Upgrades Aphria: 'Fundamental Performance Will Drive A Re-Rating'

Aphria Inc APHA shares traded higher by 15% on Monday after the stock got a big upgrade.

The Aphria Analyst: Stifel analyst W. Andrew Carter upgraded Aphria from Hold to Buy and raised his price target from CA$5.40 ($3.99) to CA$8 ($5.91).

The Aphria Thesis: Carter said the market is undervaluing Aphria’s growth prospects. Carter projects robust revenue growth, market share gains, profitability and disciplined capital allocation will result in outperformance from Aphria’s stock over time.

Carter said the company’s CA$500 million ($369.1 million) in cash will help fund its international expansion. He is projecting more than 70% annual cannabis sales growth and CA$829 million ($612 million) in fiscal 2022 revenue for Aphria. Stifel is also calling for positive free cash flow in the first quarter of fiscal 2022.

“We believe the fundamental performance will drive a re-rating for the shares manifesting in a premium to Canadian cannabis peers while driving investor interest and enthusiasm for evaluating Aphria relative to high growth consumer companies,” Carter wrote in a note.

In the near term, however, Carter said investors should be prepared for headline risk when the company reports earnings later this month. He said the market may not fully appreciate current shipment headwinds, and they should be prepared for potential fiscal year-end goodwill impairments.

Given the strength of Aphria’s balance sheet and its differentiated growth prospects, Carter said the company could even attract a global consumer partner, and partnership headlines would likely be a major bullish catalyst.

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 Aphria as well as US multi-state operators that have high-quality balance sheets and leading market shares.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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