Over the past few weeks, shares of Aphria (APHA) have pulled back more than 23%, from $5.76 to $4.40.
So what’s next for Aphria and what’s the company is doing to create long term shareholder value?
Aphria recently announced that it would be raising $100 million to finance future growth initiatives. This included a $75 million in equity financing and $25 million in debt financing through a five-year term loan. This was the first time Aphria had raised both equity and debt simultaneously.
Aphria plans to use 50% of the net proceeds of the offering towards the currently unfunded portion of Part IV Expansion, a project that will increase Aphria’s greenhouse growing capacity from 300,000 square feet to 1,000,000 square feet. The remaining balance will be allocated between the working capital necessary to support the company once the Part IV expansion is complete and strategic investments.
For shareholders, this translates into short term dilution and additional debt. Long term the plan is that the company will use this capital injection to generate increased revenues and further expand internationally.
We believe in Aphria because it is the only Canadian cannabis producer Aphria to achieve profitability in more than one consecutive quarter.
And we’re not the only ones. Aphria‘s stock had its buy rating reiterated by analysts at Jefferies Financial Group. In a report issued on January 20th, Jeffereies stated that they currently have a $10.30 target price on the stock. This indicates that they see a potential upside of more than 120% from the stock’s current price.
Jefferies also issued earnings estimates for Aphria’s Q3 2020. They are ($0.04) EPS, Q4 2020 earnings at $0.03 EPS, FY2020 earnings at $0.02 EPS. Jeffries also sees FY2021 earnings at $0.05 EPS and FY2022 earnings at $0.19 EPS.
Even though Aphria does not have the popularity that Aurora Cannabis does or the international reach, it has far less debt and goodwill. If the company can execute on the Part IV Expansion and continue to generate profit quarter over quarter, they should be able to continue to expand and we investors will reap the benefits.
(Disclosure: The author owns shares of Aphria)
APHA shares were trading at $4.40 per share on Thursday afternoon, down $0.21 (-4.56%). Year-to-date, APHA has declined -15.71%, versus a 3.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
