Replies to post #61067 on Aurora Cannabis Inc (ACB)

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Aurora Cannabis Stock Has Tanked So Far in 2020. Why an Analyst Says It's Time to Buy. -- Barrons.com
11:54 am ET January 13, 2020 (Dow Jones) Print
By Connor Smith

Aurora Cannabis stock has lost more than a quarter of its value from the start of the year. An analyst at Cantor Fitzgerald thinks the recent pullback makes it a good time to buy the shares.

The back story. Aurora Cannabis (ticker: ACB) stock has fallen nearly 76% in the past year, and 27% so far in 2020. Two analysts lowered their neutral ratings and price targets to $1 last week, noting concerns about the firm's ability to generate cash to pay off debt.

Aurora was down 4.2% to $1.58 on Monday morning while the S&P 500 index was up 0.4%. The ETFMG Alternative Harvest exchanged-traded fund (MJ), viewed as a de facto proxy for the pot industry, was up 2.5%.

One of the company's greenhouses appeared in an online sale listing, though the company clarified it was nonoperational and came with its acquisition of MedReleaf. The company said last month Chief Corporate Officer Cam Battley, one of the more public-facing executives in speaking with media and investors, was leaving the company.

Cantor Fitzergald analyst Pablo Zuanic wrote in a note earlier this month that strategic advisor Nelson Peltz should help the company find a chief executive officer who will bring greater financial discipline.

What's new. Zuanic wrote on Monday that the recent stock decline is a reaction to analyst downgrades and "misperceived matters."

"The CCO departure was good news, in our view; a planned asset sale is being done pretty much at book value; and debt covenants imply positive EBITDA by mid-year," he wrote.

He also argues trends have not worsened, noting conversations with management where they reaffirmed their prior outlook for the December quarter. They're also confident sales will ramp up in the second half of the fiscal year, with help from newly introduced cannabis derivative products like edibles and vapes.

"We would make use of the recent pullback (ACB -30% 30d vs. -10% for the group)," he wrote, referring to Canadian cannabis peers. "The poor liquidity makes the stock sensitive to downgrades (some done despite the absence of new catalysts/news) and misplaced market chatter."

Looking Ahead. Zuanic expects positive Ebitda by the June quarter, and operating expenses as a percentage of sales to start coming down.

His fiscal 2020 sales estimate of 338 million Canadian dollars (US$259 million) is well below consensus estimates at C$395 million, and is 32% lower than consensus for fiscal 2021. On the other hand, his adjusted Ebitda estimate is C$132 million for fiscal 2021, compared to consensus at C$77 million.

Excluding Canopy Growth (CGC) and Cronos Group (CRON), which have investors in big U.S. firms, Aurora deserves a premium to its average peers, given its improving cash flow picture, Zuanic says. Plus, he thinks a potential consumer packaged goods partner, or a well-known CEO, would drive upside.

Write to Connor Smith at [e-mail]

(END) Dow Jones Newswires