Aurora Cannabis (ACB) is scheduled to report its fourth-quarter earnings results on Thursday. The stock suffered in August due to headwinds in the cannabis industry. So far, September has been positive. As of Monday, the stock has gained 8.7%. Let’s see what we can expect from the company’s fourth-quarter results.
Analysts’ take on Aurora Cannabis
Previously, I discussed how analysts had a positive take on Aurora Cannabis despite headwinds in the cannabis industry. The company mainly focuses on medical cannabis. The medical cannabis market has a higher profit margin than recreation marijuana. Analysts think that Aurora Cannabis has an edge if it continues with sustainable growth in that segment.
In June, Aurora Cannabis announced how it plans to expand in the consumer cannabis market through vapes, concentrates, and edibles. Canada will legalize the second phase next month. Read Cannabis 2.0 Legalization: Canada Is Ready to learn more. The company also acquired Hempco Food and Fiber to advance its hemp business. Aurora Cannabis obtained Health Canada licenses for outdoor cultivation to conduct research on cultivation techniques.
Analysts’ fourth-quarter estimates
There weren’t many changes to analysts’ estimates for the fourth quarter since our last discussion in August. The revenues could be around 108.2 million Canadian dollars in the fourth quarter—compared to 19.1 million Candian dollars in the fourth quarter of 2018. Analysts expect the company to report a loss of 0.05 Canadian dollars per share in the fourth quarter. However, the estimate is lower than the loss reported in the fourth quarter of 2018. Aurora Cannabis reported a loss of 0.15 Canadian dollars per share in the fourth quarter of 2018. The EPS guidance has been revised upwards since May. The gross margin could be lower at 55% in the fourth quarter compared to 74% in the fourth quarter of 2018.
Aurora Cannabis updated its guidance
Aurora Cannabis updated its guidance for the fourth quarter. The net revenues could be between 100 million and 107 million Canadian dollars. The estimate implies a revenue increase of 53%–64% sequentially. The net cannabis revenues could be around $90 million and $95 million for the fourth quarter.
Production could also rise and be at the upper end of 25,000 kg–30,000 kg. Aurora Cannabis expects growth across all of its business segments. For fiscal 2019, the company expects net revenues of $249 million–$256 million.
The company’s management also expects a sequential improvement in the gross margin, the amount of cannabis sold, and the cash costs per gram produced for the fourth quarter.
Profitability will likely increase
The EBITDA is a vital profitability measure. While most cannabis companies have reported a negative EBITDA, Aurora Cannabis expects to report a positive EBITDA in the fourth quarter. A negative EBITDA implies that the company is spending more on operational costs.
Analysts expect that the company could report a negative EBITDA of 19.5 million Canadian dollars in the fourth quarter. However, the estimate is lower than the EBITDA of 39.3 million Canadian dollars in the fourth quarter of 2018. In contrast, the company expects to report a positive EBITDA in the fourth quarter.
Aphria (APHA) reported a negative EBITDA of 0.2 million Canadian dollars in the fourth quarter. The company reported a profit of $0.05 per share in the fourth quarter. Meanwhile, Cronos Group (CRON) reported a negative EBITDA of 19.6 million Canadian dollars during the second quarter. The company also reported a profit of 0.22 Canadian dollars per share in the second quarter.
Price coverage for Aurora Cannabis
Currently, 14 analysts cover Aurora Cannabis stock. Three analysts recommend a “strong-buy” for the stock for the next 12 months. Around five analysts recommend a “buy” compared to six analysts last month. Six analysts recommend a “hold.” The target price didn’t change much. The target price is set at 13.23 Canadian dollars, which represents a 68% upside potential for the stock.
Cronos Group’s target price is 19.8 Canadian dollars, which is 30% higher than its current price. Aphria’s target price is 14.9 Canadian dollars, which is 65% higher than its current price.
How does the cannabis sector look in September?
August wasn’t a positive month for the cannabis sector. There were various headwinds including regulation scandals and Canopy Growth’s disappointing results. Also, marijuana legalization became a vital topic among presidential candidates.
So far, September has been strong for cannabis. Aurora Cannabis has gained 9.2%, while Aphria and Cronos Group have gained 8.6% and 2.6% in September. The Horizons Marijuana Life Sciences ETF (HMMJ) has gained 4.4% in September. HMMJ tracks the North American cannabis industry.
Aurora Cannabis’s outlook and analysts’ views look promising. Stay with us for an in-depth discussion of the earnings call after the company releases its results. To learn more about Aurora Cannabis’s valuation, read Aphria versus Aurora Cannabis: A Valuation Update.
To learn more about the cannabis industry and legalization, read Cannabis: While the US Waits, the World Opens Up.