Last week, Aurora Cannabis (ACB) became the first cannabis stock to issue sales guidance in a postlegalization environment. Unfortunately, the company’s preliminary fiscal second-quarter guidance was lower than what analysts were expecting. Specifically, the company said that it expects net revenue of C$50 million to C$55 million, while consensus estimates called for C$67 million. In other words, Aurora completely missed the mark. In addition, ACB expects to report positive EBITDA in Q4FY19, one quarter later than expected.
In reaction, GMP’s top analyst Martin Landry, who forecast a Q2 revenue of C$75 million, reiterated a Hold rating on ACB stock, while cutting the price target from C$10.00 to C$7.50, citing limited upside moving forward.
Landry commented, “Aurora did not provide an explanation for revenues being lower than sell-side analyst expectations given that, as per management, progression is on par with internal expectations. One discrepancy could come from a slower production ramp-up than sell-side expected as management previously communicated a production run-rate of 150 tonnes by calendar year-end 2018 […] Another discrepancy can be explained by the lack of visibility on recreational revenues making forecasting challenging for sell-side analysts.”
“To reflect the company’s guidance, we are making significant revisions to our revenue and EBITDA forecasts. The reduction to our FY19 revenues is small but we have reduced revenues meaningfully for 2020. We have revised downward our 2020 international sales which were too optimistic, combined with a slower domestic recreational ramp-up. The combined result is having a material impact on our profitability. The 30% reduction in our EBITDA for 2020 explains mostly the reduction in our target. Our target is based on a DCF assuming: (1) a 7.5% discount rate, (2) average market share of the domestic recreational market of 22%, and (3) EBITDA margins of 31%,” the analyst added.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Martin Landry has a yearly average return of 37.2% and a 64% success rate. Landry has a 120.5% average return when recommending ACB, and is ranked #25 out of 5149 analysts.
All in all, ACB has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 3 ‘buy’ and 2 ‘hold’ ratings in the last six months. (See ACB’s price targets and analyst ratings on TipRanks)
