He likes the Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News: TSX:ACB) pickup of CanniMed (CanniMed Stock Quote, Chart, News: TSX:CMED), but GMP Securities analyst Martin Landry thinks the resultant company doesn’t have much upside from here.

On March 9, Aurora Cannabis announced it was successful in its bid to acquire CanniMed Therapeutics.

“Following the take-up, we will immediately commence with the integration of CanniMed into the Aurora organization and start executing on realizing the strategic synergies we have identified,” said CEO Terry Booth. “Combining two of the leading international cannabis brands creates a company that is exceptionally well positioned to capitalize on the tremendous opportunities in the domestic and international medical markets, as well as the Canadian adult consumer use market, once legalized. We look forward to working closely with our new colleagues to establish Aurora’s Medical Cannabis Centre of Excellence.”

In a research update to clients today, Landry maintained his “Hold” rating, but raised his one-year price target on Aurora Cannabis from $10.00 to $11.00, implying a return of negative 2.9 per cent at the time of publication. The analyst explained the reasoning behind the target.

“By combining with CMED, ACB has evolved into the industry’s largest LP by market cap. with significant platforms to capitalize on both domestic and international growth opportunities,” he says. “While we like ACB’s strong balance sheet and growth prospects, we feel these are already reflected in the company’s valuation. ACB shares are trading at ~35x CY19 EV/ EBITDA, a 75% premium to senior LP peers. Our target price is based on a 2-stage 10-year DCF assuming: 1) an 8.5% discount rate (unchanged), 2) an 11% share of the Canadian recreational market (unchanged), and 3) an average EBITDA margin of 33% (unchanged). The increase in our target price comes from higher sales of medical marijuana to reflect the contribution of CMED.”

Landry thinks ACB will generate EBITDA of $3.9-million on revenue of $71.7-million in fiscal 2018. He expects those numbers will improve to EBITDA of $117.6-million on a topline of $358.0-million the following year.