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After Aurora Cannabis Disappoints Investors With Q4, Analyst Says Product Shift The Right Approach

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After Aurora Cannabis Disappoints Investors With Q4, Analyst Says Product Shift The Right Approach

Analysts were reacting to Aurora Cannabis Inc.'s (NYSE: ACB) fourth-quarter report Wednesday as investors pulled back. 

The Aurora Cannabis Analysts: Piper Sandler analyst Michael Lavery maintained a Neutral rating on Aurora Cannabis and lowered the price target from $10 to $8.

Needham analyst Matt McGinley maintained a Hold rating. 

Cantor Fitzgerald analyst Pablo Zuanic maintained an Overweight rating and raised the price target from CA$17.50 to CA$18. 

Piper Sandler's Aurora Cannabis Takeaways: Aurora Cannabis reported fourth-quarter revenue of CA$72.1 million ($54 million), which was below the consensus of CA$72.6 million and also came in shy of Piper Sandler's CA$79.5-million estimate. 

Aurora Cannabis is undergoing a restructuring, with a focus on cost savings and growing higher gross margin businesses, the analyst said.

The restructuring is good news, but the fourth-quarter revenue decline is bad news for investors, he said. 

"We believe that a shift in focus to prioritize execution and be more deliberate about a broader portfolio strategy is a step in the right direction."

Aurora Cannabis had become too dependent on its value brand, Lavery said.

“Derivative products have higher margins and can likely have more brand equity than value flower.” 

Aurora appointed Miguel Martin as CEO earlier this year, and the analyst said Martin will continue to help Aurora focus on execution and a broader portfolio strategy.

Needham's McGinley is cautious on Aurora's restructuring and also a change in personnel.

“Product issues are normally harder to address, but if Aurora Cannabis doesn’t have the right people in the right places to grow revenue, it has a much bigger problem,” the analyst said. 

What’s Next For Aurora: Piper trimmed both its Aurora price target and fiscal year 2021 revenue estimate from CA$385 million to CA$275 million.

“We prefer to wait for visibility on better execution before getting more constructive on the stock,” Lavery said.
Needham's McGinley is also cautious going forward.

“A lot needs to go right in the next few months for Aurora Cannabis in terms of product for its revenue and margin to meet positive EBITDA covenants in F2Q.”

Aurora Cannabis has an amended debt covenant that requires it to reach $20 million in EBITDA in fiscal 2021, the analyst said, adding that Needham will be watching the cannabis company's EBITDA levels in the first two quarters. 

ACB Price Action: Aurora Cannabis shares were down 25.68% at $5.44 at the time of publication Wednesday. 

Latest Ratings for ACB

DateFirmActionFromTo
Oct 2020Cantor FitzgeraldDowngradesOverweightNeutral
Sep 2020Piper SandlerMaintainsNeutral
Sep 2020Cantor FitzgeraldMaintainsOverweight

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