Aurora Cannabis (ACB) stock suffered in the past few months. Turmoil in the cannabis industry impacted the stock. However, analysts have a different take on the stock.
Analysts’ take on Aurora Cannabis
In an article by Cantech Letter, Rob Wertheimer of Melius Research discussed Aurora Cannabis’s growth prospects going forward. He gave a “buy” rating despite a negative rating for the industry. He said, “This last few months, it’s been volatile. You’re basically just taking shots trying to get directionally correct, and we’ve tried to go with someone who’s got scale, leadership, ability to grow and a little bit of execution. I think it’s time for the companies to start executing.”
The medical cannabis market has a higher profit margin than the recreational cannabis market. Therefore, many analysts think that growth in the medical cannabis market could improve Aurora Cannabis’s fundamentals. A NASDAQ article stated that other analysts are also impressed with the company’s operational progress. Notably, Aurora Cannabis’s diversified market in Europe and medical sales with a higher margin provide hope.
However, analysts also think that it might be a while before investments in medical marijuana and global markets bear fruit. Right now, the only concerns that analysts have for Aurora Cannabis are its losses and capacity to pay its convertible debt of $230 million Canadian dollars. Analysts’ concerns could impact investors. As of 11:46 AM ET, the stock has risen 0.09% today.
Analysts’ estimate
Analysts expect Aurora Cannabis’s revenues to be around 108.2 million Canadian dollars for the fourth quarter—higher than the same period last year. They also expect the company to report a loss of 0.05 Canadian dollars per share in the fourth quarter—compared to a loss of 0.15 Canadian dollars per share in the fourth quarter of 2018. Analysts revised the EPS guidance slightly. Until May, they expected the company to report a loss of 0.06 Canadian dollars per share. Analysts think that the company might report a negative EBITDA of 19.5 million Canadian dollars—lower than the same period last year. The gross margin could be lower at 55% compared to 74% in the fourth quarter of 2018.
Aurora Cannabis updated its guidance
Aurora Cannabis stock got a boost at the beginning of the month. The company updated its guidance for the fourth quarter. Aurora Cannabis expects its net revenues to be between 100 million and 107 million Canadian dollars—a revenue increase of 53%–64% sequentially. The company also expects net cannabis revenues to be between $90 million and $95 million for the fourth quarter. Aurora Cannabis expects growth across all of its business segments. The segments include the Canadian and international medical market and the consumer market. For fiscal 2019, the revenue prospects also look strong. The company expects to earn net revenues between $249 million and $256 million for the year.
Despite the challenging time in the industry, Aurora Cannabis expects the production available for sale in the fourth quarter to be higher than the previous guidance. The company expects the production to be at the upper end of the range between 25,000 kilograms and 30,000 kilograms.
Aurora Cannabis expects to see a sequential quarterly improvement in its gross margins—the amount of cannabis sold and cash costs per gram produced.
Profitability measure
The EBITDA is an important measure of profitability. Most cannabis companies reported a negative EBITDA in their recent quarter. The negative EBITDA shows that operational costs are higher than the income. Aurora Cannabis aims to report a positive adjusted EBITDA, particularly from cannabis operations.
Tilray (TLRY) reported a negative EBITDA of $17.9 million in the second quarter. The company reported a loss of $0.36 per share in the second quarter. Meanwhile, Canopy Growth (CGC) (WEED) reported a negative EBITDA of 92.06 million Canadian dollars for the first quarter of 2020. The company also reported wide losses of 0.30 Canadian dollars per share in the first quarter.
Along with the guidance update, Aurora Cannabis mentioned that it continues to demonstrate leadership in transparency and disclosure. The company feels positive about its future, which assures investors in the cannabis sector.
Price coverage for Aurora Cannabis
Currently, 15 analysts cover Aurora Cannabis stock. Three analysts recommended a “strong-buy” for the stock for the next 12 months. Six analysts recommended a “buy,” while six recommended a “hold.” The target price is set at 13.23 Canadian dollars, which represents an 80% upside potential for the stock.
What took a toll on the cannabis sector?
Regulations are vital to the cannabis industry. CannTrust (CTST) violated Health Canada regulations, which dragged down the sector. Curaleaf (CURLF) was involved in FDA violations. HEXO (HEXO) also got wrapped up in scandal rumors. CannTrust, HEXO, and Curaleaf have fallen 28%, 9.6%, and 18.9% in August. Meanwhile, Canopy Growth and Tilray have fallen 28% and 35% in August. The Horizons Marijuana Life Sciences ETF (HMMJ) has lost 14.2% in August. HMMJ tracks the North American cannabis industry.
Besides the regulation issues, Canopy Growth’s results weren’t impressive. The performance dragged down the sector. Investors questioning if cannabis companies have what it takes to grow. Analysts’ views for Aurora Cannabis look promising. We look forward to the company’s fourth-quarter results. Aurora Cannabis is scheduled to report its fourth-quarter results on September 15.
A regulated market will benefit cannabis players. Additionally, tax revenues and job prospects from the industry can boost the economy as well. Cannabis is an evolving industry. As a result, many Democratic presidential candidates support cannabis legalization a national level. The White House also seems to be warming up to cannabis legalization. Stay tuned with us for the latest updates.