Aphria (APHA) stock has been experiencing some turbulence ever since a short report came out in early December suggesting the company was benefiting insiders at the expense of its investors. The stock dropped and investors became skeptical of Aphria’s future. Soon after, Green Growth Brands (GGB), a private cannabis company, proposed a hostile bid for Aphria. Some investors were excited over the news, believing Aphria’s leadership needed a shake-up and some thought it was a phony bid, executed in order to draw fake demand for the stock and bring up the share price.
Haywood analyst Neal Gilmer says GGB brings significant retail strength to the potential entity. Furthermore, Gilmer believes GGB’s leadership and Board of Directors are superior to other cannabis companies and suggests that pairing with the cultivation and production capacity of APHA will make for an excellent team.
“[…] we see this acquisition as opportunistic given the decline in share prices overall in the sector, but particularly in Aphria following the short-report. With the investor backing that GGB has and the pedigree of the management and BOD, we are confident in their ability to raise capital at $7.00 per share, supporting the acquisition metrics. We also believe the possibility remains that another bidder could emerge for Aphria and that GGB is best served to negotiate an exclusive with Aphria as they have endeavored to do so already. We believe that the offer undervalues the fundamental valuation of Aphria, however acknowledge that it will now trade on the potential take-over metrics,” Gilmer explains.
“We believe that Aphria will trade close to the implied C$11.00 share price based on both short covering but also potential for a higher price in GGB following this announcement. This has potentially put Aphria in play at depressed valuation levels and does not eliminate the possibility of another suitor emerging. However, we think GGB is in the driver’s seat and presents excellent synergy with Aphria and potential to execute a friendly transaction subject to further discussions,” the analyst predicts.
All in all, Gilmer is maintaining a Buy rating on APHA stock, while lowering the price target from $17 to $13. (To watch Gilmer’s track record, click here)
If we step back and look at the bigger picture, we can see that overall APHA stock has a ‘moderate buy’ analyst consensus rating. In the last three months, the stock has received 9 ‘buy’ ratings, 1 ‘hold’ and 1 ‘sell’ ratings. With an average analyst price target of $7.00, analysts are projecting upside potential of nearly 9% from the current share price. (See APHA’s price targets and analyst ratings on TipRanks)