It appears that no topic on Wall St. is more heatedly debated than the prospects of companies within the rapidly growing cannabis space.
One such company that usually finds itself under the spotlight or scrutiny of investors and analysts is Aurora Cannabis (ACB), the world’s second largest cannabis company by market cap. With sales and operations in 24 countries in addition to an expected annual run rate of at least 625,000 kilos by midpoint next year, the company’s impressive international reach and production profile certainly make it a formidable presence within the industry.
Cowen analyst Vivien Azer believes that Aurora’s cultivation footprint “provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market,” which leads the analyst to reiterate the company with an Outperform rating and price target of C$15.00 (To watch the analyst’s track record, click here).
Azer’s investment thesis points out that as ACB continues to expand its geographic breadth and grow its supply, the company is securing its leadership position in capacity and profitability, “with a target to be EBITDA positive in the current fiscal quarter.” Azer also notes that the company’s presence in 23 international locations gives it a competitive advantage to dominate in the international medical market, which she estimates to grow to $31 billion by 2024.
Additionally, the analyst is impressed by ACB’s “operational rigor,” which has armed the company with the ability to reach positive EBITDA as early as 4Q19 at a time when many peer companies in the industry have struggled with profitability. This accomplishment will certainly be in large part due to the economies of scale Aurora has been able to achieve, lowering cash COGS per gram 26% in the past quarter alone to C$1.42.
It’s also important to consider some of the potential obstacles ACB will face as it continues expanding its reach. Azer believes ACB could see increasingly restrictive regulatory roadblocks and lower than expected consumer demand.
Ultimately, Azer is still steadfast in her belief that “ACB should trade at a premium to the peer group given its near term path to profitability in conjunction with strong early stage execution within the nascent Canadian cannabis adult use market.”
Given Aurora’s solid positioning within the industry, Azer is not alone in her bullish outlook for ACB’s stock. TipRanks analysis of eight analysts shows a Strong Buy consensus, with six analysts saying Buy and two suggesting Hold in the past 3 months. The average price target among these analysts stands at $9.85, which represents ~26% increase from current levels
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.