Tilray stock (ticker: TLRY) rose on Monday, after a bullish note from Cowen & Co. highlighted the relative stability of the cannabis company’s revenue base. The question now: Can it catch up to Aurora Cannabis (ACB) and Canopy Growth (CGC).
The back story. Unlike some other cannabis stocks that have soared in 2019, Tilray has slipped about 2% since the start of the year. A large part of that decline can be traced to ongoing marijuana shortages.
While both medicinal and recreational marijuana use is gaining acceptance in more U.S. states, pot is already legal across Canada, which has suffered shortages. Companies like Aurora Cannabis and Canopy Growth, which appear to have more product in stock online, have fared better, notching double-digit year-to-date gains. However, Tilray hasn’t done as well, given supply concerns, even as investors shrugged off a bigger-than-expected loss earlier this month.
What’s new. Cowen & Co.’s Vivien Azer reiterated an Outperform rating and $150 price target on Tilray stock Monday. She raised her sales estimate for the current fiscal year to $179.4 million from $119.5 million, and boosted her fiscal 2020 revenue forecast as well, writing that the acquisition of Manitoba Harvest (which closed at the end of February) should provide more stability to Tilray’s top line. That said, she lowered her Canadian adult use estimates, citing continuing supply constraints and Tilray’s reliance on third parties.
Looking ahead. Although Azer is still bullish on Tilray, she warns the company will likely take longer to reach its profitability targets because of “continued reliance on bulk oil sales, third-party party supply sourcing and production ramp along with lower operating leverage.” She believes Tilray will now reach break-even in terms of earnings before interest, taxes, depreciation and amortization by mid-2020, rather than mid-2019 as she previously expected. Still, she thinks Tilray can reach margins of some 30% long term, much like those of Canopy Growth.
Tilray stock rose 0.9%% to $67.78 Monday.
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