Tilray
- Tilray shares jumped 10% on Friday after Jefferies upgraded the cannabis company to a buy rating.
- Tilray's tie-up with Aphria was a "perfect match," said Jefferies, which also raised its price target to $23 a share.
- In the analysts' upside scenario, the stock could climb to $31.
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Tilray shares stepped up by roughly 10% on Friday, bolstered by a double upgrade to "buy" from "underperform" at Jefferies, which said the cannabis company entered into a "perfect" merger with Aphria.
The rating was lifted from underperform in a note published Friday. Jefferies also raised its price target to $23 a share from $4.77, which would represent 63% upside from Thursday's closing price of $14.15.
The analysts said in an upside scenario, the stock could rise to $31, which would mark an upside of 119% from Thursday's close.
Tilray said in December it had planned to merge with Aphria in a $4 billion deal that would create the world's biggest marijuana company.
"For us, when Aphria and Tilray combined, it was the perfect match," said Jefferies equity analyst Owen Bennett. "In Canada, a leading portfolio of brands, supported an efficient cost structure. In Europe, the market is now picking up, while Tilray's scale and Aphria's unique German positioning make it perfectly suited to succeed," he wrote.
Meanwhile in the US, the combined company's portfolio of consumer goods and strong balance sheet supports "excellent optionality" around both THC and cannabidiol, or CBD. When full federal legalization arrives in the US, brand awareness of hemp-food/CBD and alcohol offerings will be advantageous, with Jefferies seeing the US market sized at $50 billion in 2025.
Shares of Tilray on early Friday climbed by 9.9% to $15.55 in heavy premarket volume. The stock has pushed higher over the past 12 months by 81%.
Jefferies said it has been mostly cautious on Tilray during its coverage. "Our issue has been that while arguably being the best-placed business to capitalize on future European growth, industry development in that region to date has stalled." At the same time, Tilray's Canadian business had "struggled" and it saw Tilray as not taking advantage of its opportunity in the US, "arguably due to its constrained balance sheet."
But it had been bullish on Aphria, it said, citing the company's strong approach to branding and efficient cost structure while it had a "very robust" balance sheet.
When "the Tilray and Aphria businesses announced they would be combining in December 2020, we were encouraged. In our view, a combined company presents a compelling proposition," wrote Bennett.