Cantor Raises Aurora Cannabis Target After Guidance Update

Aurora Cannabis Inc. ACB has announced another round of reductions in its selling, general and administrative (SG&A) expense and consolidation of manufacturing facilities.

The latest announcements should allow the company to expand gross margins by as much as 8 percentage points, according to Cantor Fitzgerald.

The Aurora Cannabis Analyst

Cantor’s Pablo Zuanic maintained an Overweight rating for Aurora Cannabis, while raising the price target from 27 Canadian dollars ($19.89) to 29 Canadian dollars ($21.37).

The Aurora Cannabis Thesis

Talks with the CEO and CFO reveal that the planned cuts should neither disrupt production nor prevent Aurora Cannabis from capitalizing on market opportunities and delivering on its growth strategy, Zuanic said in the note.

He mentioned that the announcements included:

• SG&A of $40-$45 million per quarter in fiscal 2021, with reductions in corporate and production staff as well as third-party experts
• Completion of the consolidation of production facilities in Canada by January
• Inventory write-downs of $100 million

Although management did not issue any revenue guidance for the June quarter, the tone was “more upbeat” than its peer Canopy Growth CGC, which is losing share, the analyst said.

Aurora Cannabis confirmed that the industry had returned to steady growth. Zuanic added that the company had kept its EBITDA guidance unchanged at +$51 million for fiscal 2021.

Price Action

Shares of Aurora Cannabis were trading almost flat at $13.58 at the time of publication Wednesday.

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