Will Aurora Bounce Back? Analyst Explains Why The Stock Is A 'Long-Term Turnaround Story'

Aurora Cannabis ACB ACB released its financial results for the second quarter of fiscal 2022, reporting a net loss of $75.1 million. 

Total net revenue amounted to $60.59 million, down by 10% from the same period last year. 

Adjusted EBITDA was a loss of $9.04 million, compared to a loss of $11.19 million in the same quarter of fiscal 2021. 

"During the second quarter, we improved our Adjusted EBITDA by $2.5 million over Q1, moving us closer to our profitability goal. Our focus remains on further cost reductions, and we are pleased to announce today that we expect to reach the high end of the $60 to $80 million range," stated Aurora's CEO Miguel Martin.

Over the past 12 months, the company's stock dropped 63.22%.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic kept a ‘Neutral’ rating on Aurora stock, lowering the price target to CA$7.60 from CA$10.75. 

The Thesis

The analyst lowered the price target on Aurora stock to address reduced sales estimates and sectoral derating. 

While the company’s leadership is satisfied with the progress made in several areas like the development of the profitable global medical business, rationalization of the cost structure and being on the road to reaching positive EBITDA by the first half of fiscal 2023, the lack of cash gross profit and limited gross savings on the adjusted EBITA line, compelling Zuanic to say that Aurora is more “of a long-term turnaround story.”

The analyst pointed out that despite CA$60 million in saving EBITDA only improved by CA$9 million. 

“We realize pressures in the domestic rec unit, in part, offset progress in other areas, so trend-wise we are constructive but do not have enough fodder to upgrade the stock,” the analyst wrote in his Friday analyst note.

More Time Needed 

Aurora’s management doesn’t intend to exit the domestic recreational market as it believes that the consolidation process will improve operations over time, but Zuanic highlighted “this will all take time,” recalling that in the second quarter of 2022 net recreational sales were CA$15 million while inventory impairments were around CA$20 million.

The company has put a hold on its’ Israel shipments for the March quarter, and its shipments to Germany have dropped, making the analyst think that the two key exports markets have problems at the moment.

Most of the Canadian licensed cannabis producers are currently trading below 2x Zuanic’s calendar year 2023 sales projection, Aurora at 5x only trades below Canopy Growth CGC at 11x, and Tilray TLRY at 8x, Zuanic explained.

The Price Action 

Aurora shares traded 3.26% lower at $4.44 per share during Friday's pre-market session.