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With January now in the rear-view mirror, the first month of the new year represented continued disappointment for Tilray (NASDAQ:TLRY) investors. Picking up where 2023 left off, more losses have been accrued with the stock already down by 18% year-to-date.
So, sentiment is evidently still low. However, Jefferies analyst Owen Bennett thinks that there are several reasons to be optimistic here.
“In the context of other Canadian or ex US international cannabis peers,” says the analyst, “Tilray’s business is on an increasingly strong footing, with additional evidence of that in 2Q24 (November quarter).”
For one, Tilray’s core cannabis segment has kept hold of its top spot in market share both in Canada and Europe. Additionally, in beverages, it is now the U.S.’s fifth biggest Craft brewer, and in wellness, it owns the U.S.’s top hemp brand.
Secondly, gross margins remain solid, at 26.9% in the quarter. Strip out the low-margin distribution business and a loss-making bulk sale, and those would reach 37%. “Bear in mind,” says Bennett, “this also is affected by ongoing price compression in Canada, as well as still limited scale internationally.”
Tilray also remains EBITDA positive, which is noteworthy when compared to other Canadian companies, and spanning across all four of its distinct business segments. Lastly, the balance sheet remains robust, boasting approximately $260 million in cash and equivalents, decreasing debt, and anticipating a second consecutive year of positive adjusted free cash flow.
And looking ahead, given all the above, Bennett thinks the company is well-placed for “increasingly more attractive returns.” In the short term, Bennett anticipates seeing accelerated growth, projecting a back-half EBITDA of $45.3 million compared to the $21.5 million recorded in the first half of the year. Furthermore, the inevitable consolidation in the Canadian market is on the horizon, promising improved pricing. “As the market share leader,” says Bennett, “Tilray should benefit most.” Moreover, the European market, where Tilray holds a strong position, is expected to become increasingly significant, particularly Germany.
So, where does this all leave investors? Bennett maintained a Buy rating on TLRY shares, while raising his price target from $3.70 to $4.10, implying shares will climb 118% higher in the months ahead. (To watch Bennett’s track record, click here)
Amongst Bennett’s colleagues, one analyst joins him in the bull camp, and with the addition of 5 Holds, the stock ekes out a Moderate Buy consensus rating. The forecast calls for 12-month returns of ~40%, considering the average target clocks in at $2.63. (See Tilray stock forecast)
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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.
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