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Aug 14, 2019

Tilray slides on loss, while analysts focus on pot firm's revenue beat

Tilray shares slide after quarterly loss balloons


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Tilray Inc. (TLRY.O) fell in early trading after the pot company reported a wider-than-expected Ebitda loss, offsetting revenue that beat analyst estimates.

Chief Executive Officer Brendan Kennedy doesn’t appear to be in any rush to turn a profit. “Now’s the time to invest,” he said in an interview after Tuesday evening’s earnings release. “You’d be constraining yourself if you were focused on profitability at this point.”

Although investors don’t seem pleased with the second-quarter results, analysts were largely unfazed, with the stronger-than-expected revenue and gross margins keeping them constructive on the stock.

Here’s what analysts are saying:

Cowen, Vivien Azer

Although Azer expects Tilray to continue to report adjusted Ebitda losses for at least the next 12 months, “top-line progression keeps us constructive.”

Revenue beat Cowen’s estimate by 20 per cent due to strong recreational pot sales, which Tilray doubled quarter-over-quarter. This was offset by modest growth in international exports, but Azer expects to see more meaningful revenue generation from that segment in 2020 as the Portugal facility ramps up.

Gross margin of 27 per cent was also ahead of Azer’s expectations, and she noted that management “provided fairly granular guidance on margin progression,” calling for 300 basis points of expansion in the back half of 2019 and a mid-40 per cent range by the end of 2020. Azer is “opting to take a more conservative view of gross margins, but recognize this will likely be a source of upside to our adjusted Ebitda estimates.”

Maintains outperform rating, US$150 price target.

Piper Jaffray, Michael Lavery

“We expect Tilray to remain in investment mode to drive growth and do not expect positive earnings in the near-term.” While the Canadian market may become profitable sooner, he doesn’t expect Tilray to report positive total company Ebitda for four to six quarters.

However, Tilray’s relationships with Swiss drug giant Novartis AG, Budweiser brewer Anheuser-Busch InBev NV and its acquisition of hemp food company Manitoba Harvest position it well to compete in the U.S. and internationally.

Maintains overweight rating, US$72 price target.

BMO Capital Markets, Tamy Chen

The recently announced US$30 million supply agreement with Zenabis Global Inc. “could meaningfully accelerate Tilray’s Canadian sales if Zenabis’s production ramps in a timely manner.” However, the procurement of third-party supply is also dilutive to gross margins.

New product formats are coming to Canadian shelves in December and should have a “substantially higher” cost structure. As a result, “a meaningful delay in the roll-out of these products due to regulatory or logistical issues could further exacerbate the headwinds on industry margins and cash flows.”

Maintains market perform rating, US$50 price target.

Benchmark, Mike Hickey

Gross margins should trend favorably through year-end, “although near term profitability aspirations have been abandoned as TLRY seeks to grab additional share in the emerging global cannabis market.”

Remains cautious on the Canadian regulatory environment and expects ongoing supply and distribution constraints.

Maintains buy rating but cuts price target to US$80 from US$200.