In a research report to clients Monday, Maruoka initiated coverage of OrganiGram with a “Buy” rating and a one-year price target of $3.25.
The analyst says OrganiGram’s recent stumble is a relatively minor bump in the road that has left it undevalued compared to its peers.
“After announcing a sizable product recall and a pending lawsuit following discovery of a pesticide not approved by Health Canada, OrganiGram has seen its share price trade down ~18% thus far in 2017 (vs. its peer group, which is +15% YTD). However, we believe the company still lines up nicely to many of its peers with a 5x facility expansion currently underway and a leading oil/extract strategy,” notes the analyst. “At its current valuation, we believe these recent troubles could serve as a compelling entry point as the company takes remedial action to safeguard its production practices and looks to repair its reputation and reinstate its Ecocert certification.”
Maruoka says OrganiGram has a number of advantages, including a good relationship with TGS, a leader in cannabis cultivation and extraction, a “prime location for low-cost indoor cultivation” in New Brunswick location, aggressive expansion plans, and the potential upside from the recreational market.
Maruoka thinks OrganiGram will generate EBITDA of $1.2-million on revenue of $10-million in fiscal 2017. He expects these numbers will improve to EBITDA of $12.2-million on a topline of $36-million the following year.
At press time, shares of OrganiGram were down 1.7 per cent to $2.34.