Analyst Backs Aphria (APHA) Stock Through Rough Patch, But Lowers Price Target


Aphria (APHA) is trying to recover from a near $1.1 billion loss in value after a harsh short report came out suggesting the Canadian cannabis company was defrauding investors to benefit insiders. The report showed compelling photographic evidence of Latin American assets including offices and farm spaces that the company reported spending thousands of dollars more on than the actual property cost. The stock plummeted around 25% overnight following the publication of the report.

Cormark analyst Jesse Pytlak believes the allegations against Aphria insider and founding member Andy DeFrancesco were misdirected due to the fact that DeFrancesco is not a director or executive.

Pytlak anticipates shares of APHA will remain in a volatile position in the short-term while the company’s leadership try to regain credibility with investors. Though the analyst believes this could take some time, he remains positive about Aphria’s position in the market. Pytlak notes APHA consistently proves its abilities to operate and he does not expect the recent news will take away from that. The analyst notes the selloff for APHA is now overdone based on the underlying strength of the company’s core Canadian business.

With that, the analyst reiterates a Buy recommendation but lowers his target price from $27 to $15, which shows about 168% potential upside from where the stock is currently trading. (To watch Pytlak’s track record, click here)

“With respect to the LATAM assets, the $193 MM all-stock price tag is consistent with the valuations of similar transactions. While undisclosed, we think that much of the purchase price was ascribed to the acquired Colombian assets and point to Canopy Growth’s ~$198 MM acquisition of Colombian assets also announced in July, and Aurora Cannabis’ ~$290 MM acquisition of ICC Labs announced in September as relative valuation markers. Full stop, the hard assets acquired by APHA are very early stage; however, this perspective overlooks the inherent value of the acquired suite of licenses that may allow APHA to become an early mover in jurisdictions that have the potential to become strong domestic markets and global centers of low-cost cannabis supply,” Pytlak said.

In order to present a base case valuation on the stock, Pytlak is removing any international contribution from his forecast. This makes the new revenue forecast $80 million and $383 million for FY19 and FY20 respectively.

Overall, Wall Street likes the risk/reward with Aphria. Out of 11 analysts, 9 are bullish, 1 is sidelined and 1 bearish. The consensus price target of $14.50 shows a potential upside for the stock of about 159%. (See APHA’s price targets and analyst ratings on TipRanks)

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