Bank of America initiates coverage on the cannabis sector with positive outlook on HEXO, Aurora
Cannabis may have just hit the big time as financial giant Bank of America has initiated coverage in the space, according to a report in The Street. Analyst Christopher Carey sent a note out on Wednesday, listing HEXO Corp. (HEXO) as his top pick with a $10 per share price target and a ‘buy’ rating.
As per The Street, Carey believes that the Canadian cannabis market will see supply outpace consumption by 2021, placing HEXO at an advantage over the competition when it comes to the fight for “shelf space” at retail shops.
Overall Bank of America Merrill Lynch had a positive outlook for the industry, though some companies fared better than others in Carey’s note. He initiated coverage of both Aurora Cannabis (ACB) and Canopy Growth (CGC) with "buy" rating as well, calling the former one of the few truly global companies in the sector and the latter the industry’s top-candidate to be a long-term leader.
Carey placed a target price of $11 per share on Aurora and $52 per share on Canopy.
He was especially kind to Aurora, calling the company’s scale impressive due to its low-cost production model. His note praised their ability to protect margins in what he sees as an oversupplied market as well.
Bank of America’s coverage was less kind to Cronos Group (CRON), initiating it with an “underperform” rating. Carey placed a $13 per share price target on the stock, which currently sits at around $16.00.
"For Cronos, we expect attractive long-term growth and margins, while also giving credit for the cash from Altria (MO - Get Report),” Carey wrote, according to The Street. “Despite this, the stock still screens the most expensive in our coverage. A key risk to our rating is that Cronos deploys its recently injected capital for deals in geographies or categories the market deems attractive. Otherwise, we don't see a case for near-term upside."