Buy Aphria stock for a double, GMP Securities says

Following Aphria’s (Aphria News, Stock Quote Chart TSX:APHA) first quarter results, GMP Securities is maintaining its “Buy” rating on Aphria stock, albeit with a new analyst at the helm.

In the fourth quarter, Aphria posted net income of $15.8-million on net revenue of $128.6-million, a topline that was up 969 per cent over the same period last year.

“It’s a new day at Aphria. Our team’s solid execution across key areas of our business resulted in strong adult-use revenue growth and a profitable fourth quarter,” CEO Irwin D. Simon said. “Over the last six months, our organization identified immediate priorities to help generate substantial progress near-term and long-term. We built upon existing business fundamentals and capabilities, streamlined processes, strengthened governance, and focused on building brand awareness. Together, we have nurtured an entrepreneurial culture of accountability through data-driven decision-making for value creation in the global medical and adult-use cannabis industry. Today’s Aphria has a stronger foundation for long-term growth and success.”

APHA stock looking cheap…

GMP analyst Justin Keywood, who has assumed coverage of Aphria at GMP, notes that this quarter beat most estimates on the street. He says the company’s current execution is making the stock look cheap.

“Aphria is executing on a plan to significantly improve how it operates, while expanding rapidly,” he writes. “This is supported by our conversations with experts in the industry. Aphria also has $571mm in cash to support growth initiatives, while investing in derivative products, international operations and other strategic areas. As a result, we believe that Aphria could lead but valuation is below peers at 8x F2021 EBITDA.”

Aphria stock has big upside, Keywood says

In a research update to clients today, Keywood maintained GMP’s “Buy” rating and one-year price target of $14.00 on APHA, implying a return of 102.9 per cent at the time of publication.

Keywood thinks Aphria will post EBITDA of $76.3-million on revenue of $651.2-million in fiscal 2020. He expects those numbers will improve to EBITDA of $173.6-million on a topline of $887.2-million the following year.

“Our target price was previously based on a combination of DCF and market share assumptions. We see Aphria as providing high quality products with improved operations and generally funded expansion plans. Feedback from industry contacts supports expected value creation and we believe that APHA will re-rate higher as it continues to execute,” the analyst adds.

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