Proactive Investors - Cannabis firmsOrganiGram Holdings Inc (TSX:OGI) andAurora Cannabis Inc (TSX:ACB) are increasingly attractive on the back of encouraging quarterly financial results, analysts at Jefferies believe.
They have a ‘Buy’ rating on Organigram, which they said remains a top Canadian cannabis pick, writing in a note to clients that Organigram’s first quarter 2024 earnings showed progress on every metric.
They also pointed to Organigram’s attractive optionality from key strategic investor BAT (LON:BATS), its robust balance sheet with a net cash position of C$41 million, and exposure to product innovation via convertible loans in cannabinoid biosynthesis firm Hyasynth Bio and cannabis genetic company Phylos Biosciences.
“1Q24 was very encouraging, with sales maintaining the move back to upward momentum, gross margins seeing a large sequential improvement, and there was a return to earnings before interest, taxes, depreciation and amortization (EBITDA) positive,” they wrote.
The analysts added that Organigram was well-placed to his target of positive free cash flow by the second half of 2024.
They have a C$4.40 price target on the stock which traded hands at C$2.95 on Tuesday afternoon.
The analysts also see Aurora Cannabis nearing an inflection point. They wrote that investors want to see evidence of longer-term value creation now that the company has achieved positive EBITDA for the past five quarters, specifically topline acceleration and cash generation.
They believe this is due to Aurora’s focus on the medical opportunity, particularly internationally, with medical sales making up 70% of its total sales in 3Q 2024.
“While very well-placed in this respect, and adding to this with the recent acquisition of MedReleaf Australia, medical industry growth has thus far been slow. That said, it does look as if it could be finally on the verge of meaningful acceleration,” the analysts wrote.
They have a ‘Hold’ rating and C$4.95 on the stock, which was trading at C$4.50.
On the other hand, the Jefferies analysts cautioned about Ontario-based Canopy Growth (TSX:WEED) Corporation (TSX:WEED, NYSE:CGC), noting that while they see a “compelling” growth profile for its US assets, its core Canadian operations continue to face challenges.
The analysts wrote that bankruptcy for the core has been and is a real risk, such that the company’s focus right now was simply to remain solvent. “There has been progress here, but the recent quarter showed they are not out of the woods yet,” they wrote.
They wrote that a big concern was Canopy Growth’s topline. “Even if they continue to take costs out, sales are seeing little progress,” they wrote.
“Canadian adult-use sales declined sequentially despite the addition of Wana in the quarter, and then the progress they did make was driven by the new Venty vape roll-out in Storz & Bickel (S&B).”
They said an argument could be made for selling its core Canadian operations to be a US-only company, something that is not currently possible for the company.
“Canopy’s US assets continue to be the main driver of value,” the analysts wrote. “Although yet to see the financials of the US assets, importantly we 1) expect them to be profitable and 2) expect the future growth profile to be compelling.”
They awarded the stock a ‘Hold’ rating and a price target of C$4.90, implying limited upside to its current share price of C$4.83.
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