If anyone is looking for a successful cannabis story in 2020... look away now. Aurora Cannabis (ACB) continues its relentless search for the bottom as the long-awaited shift in sentiment has failed to materialize. Shares are once again under pressure and lost close to 70% year-to-date.
The latest setback can probably be blamed on several pieces of underwhelming news. Last week, the Canadian cannabis producer provided investors with a business update and it is safe to say the news did not give long-term suffering ACB holders any cheer.
In tandem with now expecting fourth-quarter net revenue to be down from the C$78.4 million reported in Q3 to between C$70 million and C$72 million (also below the Street’s C$77 million estimate), the company also said it expects a record asset impairment charge of up to C$2.0 billion. Add into the mix the termination of a UFC partnership, which will include a one-off payment of US$30 million in 1Q21, and it all paints a familiar dispiriting picture.
For Jefferies analyst Owen Bennett, the disappointing update is further exacerbated by the choice of new CEO. The position has finally been filled with the appointment of Miguel Martin.
“One,” the analyst said, “Mr Martin was only just promoted to Chief Commercial Officer in July. The fact that he was given the CEO role so soon after would suggest limited availability of suitable (or indeed interested) parties externally. To this, there were arguably more expectations with ACB given the role of Nelson Peltz as a strategic advisor. Two, while we don't assume Mr Martin is not capable, and he should be judged on results, it is easy to pick holes in his experience with regard to building international brands across a variety of distribution channels.”
To this end, Bennett rates ACB shares an Underperform (i.e. Sell). But Bennett might as well have said Buy — because he thinks the stock, currently at C$9.29 (US$7.01), could zoom ahead to C$14.00 (US$10.62) within a year, delivering 51% profits to new investors. (To watch Bennett’s track record, click here)
Aurora might not have the Street’s full confidence, but overall, Bennett’s colleagues are more positive. ACB's Hold consensus rating is based on 2 Buys, 7 Holds and 1 Sell. At C$16.82 (US$12.76), the average price target suggest shares will appreciate by a strong 81% over the next 12 months. (See Aurora price targets and analyst ratings on TipRanks)
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