Tilray Earnings: Shares Up 15% on Return to Profit Growth

Tilray Brands Stock at a Glance

• Fair Value Estimate: $6.50
• Morningstar Rating: 5 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: None

Tilray Brands Earnings Update

Tilray Brands TLRY surprised us in its May-ended fourth quarter, disclosing net revenue of $184 million and adjusted EBITDA of $22 million. In comparison, our full-year forecast implied $156 million and $14 million, respectively. The company’s cannabis, beverage, and distribution segments outperformed our expectations.

The solid results also seemed to surprise the market, with shares up 15% after the release. Still, due to slightly weaker guidance than our forecast and expected dilution from refinancing pending maturities of convertible debt, we expect to lower our fair value estimate of $6.50 per share by mid-single digits.

Shares remain very undervalued, and we think the post-report rally is the result of decent results surprising lingering negative market sentiment for shrinking profits—a common plague among Canadian licensed cannabis producers. However, Tilray has bucked the trend, with adjusted EBITDA growing an impressive 28% in fiscal 2023, even as the top line was roughly flat. Management has guided to adjusted EBITDA growth of 11%-27% in fiscal 2024, which should also benefit from the now-closed HEXO acquisition.

Additionally, although we see limited synergies between cannabis and alcohol, Tilray’s acquired alcohol businesses have been helpful contributors to profit growth, especially as the Canadian cannabis market has been so challenging, with too many competitors and a stubborn illicit market.

In May, Tilray issued $150 million in unsecured convertible senior notes, driving shares down roughly 20%. As we previously argued, we think the market reaction to this was overdone. Although we expect to reduce our fair value estimate slightly due to dilution from new notes, the magnitude for Tilray is far smaller than its peer Canopy CGC, which added about one-third more shares to deal with nearing maturities. Tilray has also been EBITDA-profitable for some time, and the company expects to hit an adjusted free cash flow breakeven point this fiscal year.