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All eyes might be on the tech giants’ earnings reports this week but there are other intriguing financial statements that are also being released. Before the opening bell rings on Thursday’s market action, Tilray (TLRY) will announce its fiscal fourth quarter results (May quarter).
Jefferies’ Owen Bennett expects a “mixed” showing with share losses continuing in the difficult Canadian cannabis market, although to a “flatter” extent than before. While the analyst calls the performance in the Canadian adult use market “unhelpful,” following the quarter’s end and taking into consideration recent action on pricing, there have been “signs of improvement,” and over the past two months, Tilray has been reclaiming market share.
But beyond the quarter, it’s the other parts of the business which Bennett finds most appealing.
On the international front, with a ~20% market share of the German industry, and in anticipation of recreational cannabis (Germany could legalize cannabis sometime in the next couple of years), the company is “very well positioned in this key market.”
Furthermore, new launches and distribution gains should “continue to support” the beverages segment, while the recent distribution deal with Whole Foods for its Manitoba Harvest hemp products has also “bolstered” the outlook.
Lastly, with federal legalization south of the border still set to provide a catalyst at some point, US THC “optionality” is of vital importance to the outlook. “This is key for material re-rating of all cannabis names, in our view,” says Bennett. “It has existing US consumer assets that can be leveraged into THC (Sweetwater, Breckenridge, Manitoba Harvest), and made a recent first move into THC when it acquired optionality on MedMen converts (with a clear path to control).”
As for the numbers, Bennett anticipates FQ4 revenue of $149.1 million, a sequential drop of 1.8% (consensus has $152.7 million), while margins are also likely to “see pressure,” with adj. gross margins up by only 30bps sequentially to 26.5%, lower than the Street’s expectation of 27.3%.
All told, Bennett rates TLRY shares a Buy rating, while lowering his price target from $15.6 to $12. Still, the revised figure makes room for 12-month gains of an ample 255%. (To watch Bennett’s track record, click here)
At first look, Bennett's prospects don’t appear too favorable amongst Wall Street’s analyst corps right now. Based on 6 Holds and 2 Buys, the stock has a Hold consensus rating. However, there’s some nice gains projected here; at $5.89, the average target suggests shares will rise ~81% in the year ahead. It will be interesting to see whether the analysts upgrade their ratings or cut price targets over the coming months. (See TLRY stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.