Proactive Investors - Analysts at Canaccord Genuity (TSX:TSX:CF, LSE:CF) have lowered their price target for Tilray (TSX:TLRY) Brands after the company announced it is acquiring its strategic partner HEXO for US$56 million in tandem with the release of its fiscal 3Q 2023 results earlier this week.
In a note to clients, the analysts wrote that their updated price target was US$4.25, down from US$5, with a ‘Buy’ rating. Tilray shares were trading down 2.8% at US$2.45 on Wednesday afternoon.
The analysts wrote that for the fiscal third quarter, Tilray reported revenue of about US$145.6 million, representing about a 1% sequential increase and just ahead of their US$143 million forecast.
However, the analysts noted that Canadian adult-use revenue of US$45.3 million represented a 13% decline quarter-over-quarter.
“Following the quarter, we have made further downward revisions to our FY23 estimates (particularly in Tilray's domestic operations) but have not made any pro forma adjustments for the acquisition of HEXO until closing,” the analysts wrote.
“TLRY currently trades at 2.5x its CY2023E EV/Rev versus the large-cap licensed producer average of about 2.6x.”
Regarding Tilray’s acquisition of HEXO, the analysts noted that the purchase price of about US$56 million was a slight discount to HEXO’s market capitalization prior to the deal’s announcement.
“With the deal representing an estimated EV of about US$150 million, we estimate that the acquisition of HEXO represents a transaction multiple of about 1.8x 2023E EV/Revenue compared to TLRY's current trading multiple of about 2.5x,” the analysts wrote.
The analysts added that they value HEXO using the exchange ratio outlined in the acquisition announcement of 0.4352, and, as a result, they are lowering their price target to C$1.50 from C$1.80 with a ‘Hold’ rating.
HEXO’s Toronto-listed shares were trading down 1.2% at C$1.59 on Wednesday afternoon.