On Monday, shares of Aurora Cannabis (ACB) surged by 16% following an analyst upgrade and in anticipation of what investors hoped would be a positive earnings report to mark a turnaround from recent travails. However, the results followed what is by now a familiar story and on Tuesday, Aurora handed all the fresh gains back to the market with interest.
So, what happened? Although FQ4 revenue came in at C$72.11 million and beat the estimates by C$0.62 million, it still represented a year-over-year decline of 4.5% and a 5% drop from the previous quarter. Consumer revenue dropped by 9% from F3Q to F4Q. In contrast, during the same period, the Canadian adult-use market increased by 16%.
Aurora reported a net loss from continuing operations of CA$1.86 billion, far above the previous quarter’s net loss of CA$136.1 million. Overall, the company posted negative EBITDA of CA$34.6 million.
So far, so bad. But it gets worse...
Aurora’s F1Q guidance is for C$60 to C$64 million in total cannabis revenue which implies a double-digit sequential decline is on the way.
Aurora, however, has been trying to steady the leaking ship, meaningfully cutting back on SG&A expenses. Additionally, after waving farewell to two CEO’s in 2020, this was Aurora’s first earnings report since the appointment of new CEO Miguel Martin.
For Needham analyst Matt McGinley, the quarter’s good news is that the company’s restructuring is now complete. And the bad news? McGinley’s analysis indicates Martin has a lot on his plate if the company is to achieve its goal of turning EBITDA positive in F2Q21.
“The tactical plan is to refocus on premium products, extracts, and to use better data insights to drive higher gross margin dollars. The challenge is that on the cusp of F2Q21, this plan hasn’t been launched and requires a portfolio reset, all while meeting positive EBITDA covenants that start at $4mn in 2Q and rise to $17mn in 4Q (compared to a $(34)mn loss in 4Q20). Simply put, a lot needs to go right in the next few months for ACB in terms of product for its revenue and margin to meet positive EBITDA covenants in F2Q,” the 5-star commented.
As a result, McGinley stays on the sidelines with a Hold rating, without suggesting a fixed price target. (To watch McGinley’s track record, click here)
Turning now to the rest of the Street, where based on 1 Buy and 10 Holds, the analyst consensus also rates Aurora a Hold. However, the rating might as well say Buy, as the average price target clocks in at C$12.1 ($9.09) and implies shares will rise by 53% over the next 12 months. (See ACB stock analysis on TipRanks)
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