Aurora Cannabis (ACB) will report its earnings for the first quarter of fiscal 2020 next month. Reuters expects the company to report its earnings on November 11. Since the company posted its fourth-quarter earnings on September 11, it has lost 43.6% of its stock value as of Monday. The lower-than-expected fourth-quarter revenues, analysts’ downgrades, and weakness in the cannabis sector appear to have caused the company’s stock to fall. Can the company’s first-quarter earnings boost its stock price? Let’s look at analysts’ expectations from Aurora Cannabis’s first-quarter earnings.
Lower revenue growth
For the first quarter of fiscal 2020, analysts expect Aurora Cannabis to report revenues of 99.2 million Canadian dollars. Sequentially, analysts’ estimate represents a rise of 0.2% from 98.9 million Canadian dollars in the fourth quarter of fiscal 2019. Meanwhile, the company reported a sequential growth of 51.9% in the fourth quarter.
We expect the expansion of Aurora Cannabis’s production facilities and growth in its medical business to drive its revenues. However, in the fourth quarter, the company reported wholesale or bulk cannabis sales of approximately 20 million Canadian dollars. During the earnings call, the company’s management cautioned investors not to expect the same performance every quarter. Meanwhile, the company has opened new stores at a slower rate in Canada, which could cause a deacceleration in its revenue growth.
Will Aurora Cannabis’s EBITDA fall?
Analysts expect Aurora Cannabis’s gross margin to improve from 55.7% in the fourth quarter of fiscal 2019 to 57.0%. We expect the economies of scales from the company’s higher-volume facilities and an improvement in its production efficiencies to drive its gross margins.
However, analysts expect Aurora Cannabis to report a negative EBITDA of 19.1 million Canadian dollars. Likewise, the company reported a negative EBITDA of 11.7 million Canadian dollars in the fourth quarter. We expect Aurora Cannabis’s increased SG&A (selling, general, and administrative) expenses to lower its EBITDA. Continued investments in growth initiatives, like research and product innovations, will likely increase the company’s SG&A costs.
For the same period, analysts expect Canopy Growth and Cronos Growth to report a negative EBITDA of 92.7 million Canadian dollars and 19.1 million Canadian dollars, respectively.
As of Monday, 17 analysts covered Aurora Cannabis. Among the analysts, 47.1% recommend a “buy” rating, 41.2% recommend a “hold” rating, and 11.8% recommend a “sell” rating. Notably, analysts’ consensus target price was 8.33 Canadian dollars, which implies an upside potential of 73.5% from it sclosing price on Monday.
After Aurora Cannabis reported its fourth-quarter earnings, Stifel downgraded the stock from “hold” to “sell.” Also, Stifel lowered its target price from 7 Canadian dollars to 5 Canadian dollars. MKM Partners initiated its coverage on Aurora Cannabis with a “sell” rating, while CIBC started covering the stock with a “hold” rating. Since September 11, Eight Capital, Cowen and Company, MKM Partners, CIBC, and Jefferies have all lowered their target prices for the company.
Let’s look at analysts’ ratings for Aurora Cannabis’s peers
- Analysts are bullish on Canopy Growth. Among the 21 analysts that cover the company, 52.4% recommend a “buy” rating. Overall, analysts have given Canopy Growth a 12-month target price of 45.96 Canadian dollars with a 12-month return potential of 73%. To learn more, read Canopy Growth: Analysts Provide Target Price and Ratings.
- Analysts favor a “hold” rating for Cronos Group. Among the 13 analysts that follow the stock, 61.5% recommend a “hold” rating. Notably, the consensus target price for Cronos Group is 16.24 Canadian dollars, which implies a return potential of 46.3%.
Cannabis sector’s performance
So far, the cannabis sector has underperformed the broader equity market. Vaping-related deaths, regulatory scandals, and the expectation of slower sales growth in the second half of 2019 have brought the cannabis sector down. So far, the Horizons Marijuana Life Sciences Index ETF (HMMJ) and the ETFMG Alternative Harvest ETF (MJ) have lost 20.1% and 25.2% of their stock value YTD. Individually, Aurora Cannabis, Canopy Growth, and Cronos Group have fallen 29.2%, 27.4%, and 22.8%, respectively.
Earlier this month, Aphria (APHA) reported its earnings for the first quarter of fiscal 2020, which ended on August 31. For the quarter, the company missed analysts’ revenue estimates. However, Aphria beat analysts’ EBITDA and net profit estimates, which led to a rise in its stock price. To learn more, read Aphria Stock Rose after Impressive Q1 Performance. HEXO (HEXO) will report its fourth-quarter earnings on Thursday. Read HEXO: What Can You Expect from Its Q4 Earnings? to learn more.
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