Why Aphria Is Cantor Fitzgerald's Top Pick Among Canadian Cannabis Producers

An Aphria Inc. APHA is staying bullish on the cannabis stock ahead of the company's third-quarter results later this month. 

The Aphria Analyst

Cantor Fitzgerald’s Pablo Zuanic reaffirmed an Overweight rating on Aprhia and lowered the price target from CA$11.50 ($8.10) to CA$9.30 ($6.54).   

The Aphria Investment Thesis

Aphria is expected to report third-quarter financial results on April 15.

Cantor Fitzgerald believes Aphria  will stick with its previously guidance that implies 150% half-on-half growth ending in May, and not use the COVID-19 pandemic to retract it, Zuanic said in a Wednesday note. 

Cantor's “conviction is strengthened," and the firm places Aphria as its top pick among other Canadian licensed producers, the analyst said. 

"Among Canadian LPs, we rate APHA, OGI, and ACB OW, in that order." 

Aphria seems positive about bringing in the fiscal year 2020 sales guidance of $575-625 million, or cannabis sales of $225-250 million for the year, Zuanic said, adding that he estimates cannabis sales of $52 million and $83 million for the third and fourth quarters, respectively, and $200 million for the fiscal year 2020.

“We project total sales of $140Mn vs. consensus of $131Mn, with cannabis at $53Mn and CC Pharma at $87Mn. In a rec market that in Feb grew nearly 20% seq, this would mean APHA gained about 4pts of share in rec; we think this is reasonable given the problems at ACB and TLRY (N).”

Despite challenging market conditions like “the rise of the value end and oversupply of mixed quality product,” Aphria managed to improve its cannabis gross margins from 50% in August to 58% in November, the analyst said. 

The analyst projects a higher adjusted EBITDA of $11 million for the quarter versus the consensus estimate of $4 million. 

Cannabis 2.0 products should largely account for Aphria’s May quarter sales, Zuanic said. 

The company is also expected to have more sales in the fourth quarter when the Aphria Diamond facility starts earning, he said, helping to improve overall margins.

“If management maintains guidance, we would expect that to be a significant catalyst for the stock.”

APHA Price Action

Aphria shares were down 5.57% at $2.88 at the time of publication Wednesday. 

Photo courtesy of Aphria Inc.