Aurora Cannabis (ACB) had a tough year. The stock had lost 63.1% of its value in 2019 as of December 27. Its declining cash position, increasing debt levels, and lower-than-expected performance in the last two quarters paired with the weakness in the marijuana sector appear to have dragged its stock down. Let’s look at how analysts have lowered their expectations for Aurora in the last few months.
Analysts lowered their estimates for ACB
At the beginning of October, analysts expected ACB to report revenue of 581 million Canadian dollars in fiscal 2020. Even though the company’s management recently provided an update on its upcoming Cannabis 2.0 products, analysts lowered their revenue estimate to 383 million Canadian dollars as of December 27. During the same period, they reduced their fiscal 2021 revenue estimate from 975 million Canadian dollars to 686 Canadian dollars and their fiscal 2022 revenue estimate from 1.709 billion Canadian dollars to 1.118 billion Canadian dollars.
After Aurora reported its fiscal 2020 first-quarter earnings, the company’s management announced the scaling down of some of its expansion plans, citing a decline in cannabis demand. We believe that the decision to scale down its expansion plans, pricing pressures, and a decline in cannabis demand could have prompted analysts to lower their revenue expectations.
Analysts have also lowered their EBITDA estimates. At the beginning of October, they expected ACB to report EBITDA of -35 million. However, they lowered their EBITDA estimate to -103 million Canadian dollars as of December 27. During the same period, they dropped their 2021 EBITDA estimate from 192 million Canadian dollars to 45 Canadian dollars and their 2022 EBITDA estimate from 457 million Canadian dollars to 207 million Canadian dollars. The company’s revenue decline and expectations of pricing pressures could have prompted analysts to lower their estimates.
Analysts lowered their ratings and price targets
At the beginning of October, 17 analysts were covering ACB. Of these analysts, 47.1% favored “buys,” while 41.2% recommended “holds,” and 11.8% recommended “sells” on the stock. By December 27, 20 analysts were covering the stock. Of these analysts, 40% favored “buy” ratings, 45% recommended “holds,” and 15% supported “sell” ratings. During this period, analysts’ consensus estimate fell 107.4% to 4.87 Canadian dollars. The new consensus price target implies a 12-month return potential of 95%.
ACB has underperformed its peers in 2019
ACB, which has lost 63.1% of its stock value, has underperformed its peers and the broader equity market this year. Its peers Canopy Growth (WEED), HEXO (HEXO), and Aphria (APHA) have fallen 31.4%, 55.4%, and 18.7%, year-to-date, respectively. Meanwhile, the S&P 500 Index has increased by 29.2% during the same period. For more on cannabis-related news and updates, visit 420 Investor Daily.