Jefferies Bearish On Tilray: 'The Stock Is Too Expensive For Its Outlook'

Cannabis investors woke up to a negative sell-side take on Tilray Inc. (NASDAQ: TLRY) Friday, with Jefferies calling the Canadian company's valuation unjustified.

The Analyst

Jefferies analyst Owen Bennett initiated coverage of Tilray with an Underperform and $61 price target. 

The Thesis 

Too much value is assigned to Tilray's partnerships with Anheuser Busch Inbev NV (NYSE: BUD) and Authentic Brands Group, Bennett said in the initiation note. 

"We appreciate [Tilray] is well-placed in medical, but future value here will be driven by intellectual property, for which little visibility [exists] near-term," the analyst said.

The company's share structure also raise concerns of a risk of increased volatility, Bennett said. 

Tilray’s valuation is too costly, the analyst said. "Our 10-year DCF-driven valuation suggests the stock is too expensive for its outlook, with an appropriate discount for long-term medical uncertainty not captured." 

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Research suggests that Tilray lacks in the recreational market, as its focus has been on medical market, Bennett said.

Along with Canopy Growth Corp. (NYSE: CGC), Tilray is seen as a medical leader globally. Yet its lack of IP and drug formulations give Jefferies cause for concern about the company's long-term value, the analyst said. 

Jefferies sees Tilray falling short of competitors Canopy and Aurora Cannabis Inc. (NYSE: ACB).

The research firm forecast 2020 calendar year sales for Canopy and Aurora that are 2.7x and 2.2x higher than Tilray's.

Price Action

Tilray shares were down 1.92 percent at $68.38 at the time of publication Friday. 

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