Tilray (TLRY) surprised Wall Street last week when it recorded an unexpected profit in its June quarter (FQ4) report, the first since merging with fellow Canadian LP Aphria.
Although revenue didn’t quite hit the heights analysts were expecting, the anticipated synergies and combined power of the new unit along with the international cannabis opportunities the company has set its sight on pursuing resonated well with investors.
And with Jefferies analyst Owen Bennett too. Bennett’s coverage of the Canadian cannabis industry had often been defined by a bearish outlook for many of the companies operating in the space, one where regulations, intense competition and mismanagement has often made it hard for companies to succeed. But Bennett sees Tilray in a different light.
“Tilray remains our top pick in Canada, and we continue to see strong upside potential in the next 12 months,” the analyst said. “In the existing business, we expect Canadian trends to be much improved as Tilray boosts its market share leadership and overall industry growth accelerates, while for other business segments, lapping COVID should support.”
But more importantly, it is the non-Canadian opportunity, specifically the one south of the border, which is exciting Bennett the most.
Much has been made of the long hoped for U.S. legalization of cannabis at the federal level, which will allow the Canadian operators to enter the lucrative U.S. market. Bennett also believes U.S. optionality will be a “big near-term driver of sentiment.” And going by the recent commentary made by management, Bennett anticipates an “aggressive near-term move(s) into US THC,” sooner rather than later. And a “sizable” one at that.
So, what could this entail? Tilray’s bottom end target is to reach U.S. THC sales of $1-1.5 billion by FY24, which would represent a “value share of c.5.5%.” To do so, Bennett believes the company would need to acquire a current (FY22) value share of at least 4.0% – equating to sales of $600 million.
“We think it is possible the co will do this via one multi-state operator,” the analyst opined, “But we think a combination of a few multi-state and/or single-state operators is more likely.”
Based on this prospective opportunity, Bennett raised the price target from $17 to a Street high of $27, implying shares could boast growth of 89% over the next 12 months. Bennett’s rating stays a Buy. (To watch Bennett’s track record, click here)
Not everyone on the Street shares the Jefferies analyst’s enthusiasm. In fact, the stock’s Moderate Buy consensus rating is based on 4 Buys vs. 6 Holds. Bolstering the bulls’ case, the projected upside is ~36%, given the average price target currently clocks in at $19.68. (See TLRY stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.