Analysts Neutral on Aphria’s 2020 Outlook in December

Aphria (APHA) has successfully impressed investors compared to other cannabis companies this year. Even though the same factors have affected the entire industry, things were a little different for Aphria.

In Has Irwin Simon Really Turned Aphria Around? I talked about how Simon’s leadership has been advantageous for the company. Its earnings results have been stable this year.

Analysts have lowered their estimates for cannabis companies for fiscal 2020. Let’s see what they think about Aphria for the year.

Analysts’ revenue estimate for Aphria remains neutral

Aphria reported good year-over-year revenue growth in the first quarter of fiscal 2020. Its first-quarter revenue was around 126.1 million Canadian dollars, a rise of 849% over the first quarter of fiscal 2019. However, analysts reduced their fiscal 2020 revenue estimate for the company. Let’s take a look at the monthly revisions to their revenue estimates. After Aphria’s earnings results in November, analysts lowered their consensus revenue estimate to 591 million Canadian dollars. In December, analysts’ revenue estimate for fiscal 2020 remained the same—perhaps because of the subdued outlook for the entire sector.

In my opinion, how the Cannabis 2.0 market will turn out is still up in the air. There’s no doubt about the demands of edibles and beverage products. Edibles are much more popular and in demand than cannabis flowers. Production is also not an issue, as cannabis companies have said they’re well prepared to launch their products. The worry here is about supply. When Canada legalized cannabis in 2018, despite high demand, the existence of too few retail stores caused a demand-supply imbalance.

It appears analysts still suspect that the same problem will occur. However, Canada has announced that it’s working on easing the process of opening retail cannabis stores. Ontario has also been working on updating its laws. Soon all major provinces will see cannabis edibles products. We can expect a turnaround for cannabis companies in 2020. Read Raymond James Foresees a Cannabis Rebound in 2020 to know more.

Furthermore, analysts lowered their revenue estimates for Aphria in fiscal 2021 and 2022 after its first-quarter earnings results. In November, analysts estimated revenue of 802 million Canadian dollars for it in fiscal 2021 and 973 million Canadian dollars for it in fiscal 2022. The estimates remain the same in December.

Are analysts’ estimates for other financial metrics neutral?

Analysts’ estimates for Aphria’s fiscal 2020 gross income fell to 185 million Canadian dollars in November after its earnings release. In December, the estimate remained the same. Analysts reduced their consensus EBITDA estimate for Aphria’s fiscal 2020 from 44 million Canadian dollars in November to 42 million Canadian dollars in December. However, the good news is that Aphria is still expected to report positive EBITDA in the year. Analysts expect higher positive EBITDA of 128 million Canadian dollars for it in fiscal 2021. It looks like analysts don’t expect Cannabis 2.0 to help with its profitability until then.

Analysts also expect Aphria to report earnings of 7 million Canadian dollars in fiscal 2020. This number could rise to 47 million Canadian dollars in fiscal 2021.

What are analysts saying about Aphria’s peers?

Let’s take a look at what analysts think about significant cannabis players such as Aurora Cannabis (ACB), Canopy Growth (WEED), HEXO Corporation (HEXO), and Cronos Group (CRON) in fiscal 2020. Analysts have been disappointed by the earnings results of these companies this year. Supply-demand concerns took a toll on the revenues and profitabilities of these cannabis players.

  • Aurora Cannabis could report revenue of 371.6 million Canadian dollars and EBITDA of -104.5 million Canadian dollars in fiscal 2020.
  • Canopy Growth (CGC) could report revenue of 407.4 million Canadian dollars and EBITDA of -436.8 million Canadian dollars in fiscal 2020.
  • HEXO could report revenue of 75.4 million Canadian dollars and EBITDA of 62.0 million Canadian dollars in fiscal 2020.
  • Cronos could report revenue of 146.1 million Canadian dollars and EBITDA of 54.2 million Canadian dollars in fiscal 2020.

Where do analysts stand on Aphria?

While most of Aphria’s peers have “hold” recommendations from analysts, analysts seem bullish on Aphria stock. Currently, around 13 analysts cover Aphria stock. Of these analysts, 54% call Aphria a “buy,” while 23% call it a “strong buy.” Additionally, 15% feel the stock is a “hold,” while 8% think it’s a “sell.” Its average target price is 12.45 Canadian dollars, reflecting a potential upside of 95% in the next 12 months. The stock closed with a gain of 1.6% on December 27.

In comparison, around 45% of the analysts covering ACB think it’s a “hold,” and its target price is 4.87 Canadian dollars. Approximately 58% of the analysts covering CGC recommend “holds,” and its target price is $21.78. Additionally, approximately 54% of the analysts covering CRON think its a “hold,” and its target price is 12.5 Canadian dollars.

YTD (year-to-date), Aphria has lost 13.8%. In December, APHA has gained 3.3%. Meanwhile, CGC is down 28.5%, while ACB is down 63.5% YTD. CRON is also now down 39.1%, and HEXO is down 69.5% YTD.

On December 27, an Investor Place article discussed how Aphria is a reasonable choice among other cannabis stocks because of its revenue growth and liquid balance sheet.

Analysts’ estimates for the upcoming quarter

For Aphria’s second quarter of fiscal 2020, analysts expect revenue of 129.9 million Canadian dollars compared to 21.6 million Canadian dollars in the second quarter of fiscal 2019. Additionally, they expect its adjusted EBITDA to be around 1.6 million Canadian dollars compared to its negative EBITDA in the first quarter of fiscal 2019.

Meanwhile, Aphria has reaffirmed its guidance and stated that it expects 650 million–700 million Canadian dollars in revenue in fiscal 2020. It also expects EBITDA of 88 million–95 million Canadian dollars. Analysts have also revised their estimates for Canopy Growth’s fiscal 2020.

Aphria is set to release its fiscal 2020 third-quarter on January 14, 2020. At that time, we’ll have a better picture of the company’s plan for fiscal 2020. For more marijuana industry news, check out 420 Investor Daily.