Apr 17, 2020 (Market Realist via COMTEX) -- On April 14, Aphria /zigman2/quotes/207425803/composite APHA +2.56% reported its third-quarter earnings . For the quarter, the company reported revenues of 144.4 million Canadian dollars, which beat analysts' expectation of 130.6 million Canadian dollars. The company's adjusted EBITDA was 5.7 million Canadian dollars, which beat analysts' expectation of 4.18 million Canadian dollars. Aphria's net income was 5.7 million Canadian dollars. Let's look at how analysts reacted to Aphria's third-quarter performance.
Analysts' reaction to Aphria's third-quarter earnings
Analysts' reactions were mixed. Since Aphria reported its third-quarter earnings, CIBC, Jefferies, and Eight Capital have lowered their target prices. In contrast, Stifel increased its target price. CIBC has cut its target price from 7 Canadian dollars to 6 Canadian dollars. Jefferies lowered its target price from 10 Canadian dollars to 9 Canadian dollars, while Eight Capital cut its target price from 9 Canadian dollars to 8 Canadian dollars. However, Stifel increased its target price from 4.5 Canadian dollars to 5.3 Canadian dollars.
Compared to last month, analysts' consensus target price has declined from 11.14 Canadian dollars to 8.16 Canadian dollars. The new target price represents a 12-month return potential of 62.2%. On the same day, OrganiGram /zigman2/quotes/209289540/composite OGI 0.00% , Cronos Group /zigman2/quotes/206842762/composite CRON -2.93% , and HEXO were trading at a discount of 118.4%, 7.6%, and 86.4% from their respective target prices.
From the above graph, you can see that there has been a gradual decline in analysts' consensus target price since March 2019. Weakness in the cannabis sector due to lower-than-expected demand, pricing pressure, and a robust black market likely prompted analysts to lower their target prices.
Eight Capital upgrades Aphria
Although Eight Capital cut its target price for Aphria, it upgraded the stock from "neutral" to "buy." On March 19, Bank of America upgraded the stock from "neutral" to "buy." Analysts are still bullish on the stock. Among the 14 analysts that follow the stock, 78.6% recommend a "buy," while 21.4% recommend a "hold." None of the analysts recommend a "sell." Let's look at analysts' recommendations for Aphria's peers.
On April 14, OrganiGram reported weaker-than-expected second-quarter earnings , which prompted many analysts to cut their target prices. Among the 16 analysts that follow the company, 75% recommend a "buy." To learn more, read Wall Street Is Bearish after OrganiGram's Q2 Results .
Analysts favor a "hold" rating for Cronos Group. Among the 13 analysts, 61.5% recommend a "hold."
Analysts are bearish on Hexo. Among the 17 analysts that follow the company, 52.9% recommend a "sell."
During the earnings call, Aphria CFO Carl Merton said that the company revoked its guidance for fiscal 2020 due to uncertainty amid COVID-19. However, Owen Bennett of Jefferies stated that investors shouldn't be detracted by the withdrawal of the fiscal 2020 guidance, as reported by MarketWatch . In the research note, Bennett wrote that Aphria reported another stellar performance. Aphria is one of the few cannabis companies that reported sales and earnings growth. He said that the company's liquidity position looks strong as it enters a period of uncertainty.
Stock performance and my take on Aphria
Despite an impressive third-quarter performance, Aphria stock has fallen by 1.2% since it reported its third-quarter performance. Weakness in the cannabis sector dragged the stock down. Meanwhile, the company has lost 25.8% of its stock value YTD. Despite the fall, the company has outperformed cannabis ETFs. During the same period, the ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -0.55% and the Horizons Marijuana Life Sciences Index ETF /zigman2/quotes/208856346/delayed CA:HMMJ +1.35% have fallen by 35.0% and 30.7%, respectively. Aphria has also outperformed OrganiGram and Hexo, which has fallen by 33.5% and 66.7%, respectively.
I was bullish on Aphria even before its third-quarter performance. The company's impressive third-quarter performance strengthened my bullish view on the stock. By the end of the third quarter, the company had 515.1 million Canadian dollars of cash and cash equivalents. Aphria has the ability to fund its expansion plans in Canada and international markets. So, I think that investors should accumulate the stock on dips.