At the beginning of this year, Aurora Cannabis’s (ACB) management announced that it planned to achieve positive EBITDA by the fourth quarter of fiscal 2019, which ended on June 30. However, the company didn’t report positive EBITDA even in the first quarter of fiscal 2020, which the company posted on November 14.
During its first quarter, the company’s adjusted EBITDA stood at -39.7 million Canadian dollars. During the Q1 earnings call, ACB’s management noted that its continued investment in its global operations could pose near-term challenges in achieving positive EBITDA. Plus, the company noted that uncertainty over its revenue stream growth added to this challenge.
Aurora Cannabis announced that it plans to focus on higher-margin extract products and increase gross margins through economies of scale expenses to achieve positive EBITDA. It also plans to lower its SG&A (selling, general, and administrative) expenses to record positive EBITDA.
ACB management plans to pause the construction of its Aurora Nordic 2 facility in Denmark and Aurora Sun facility in Alberta due to the weakening demand for cannabis. The company expects to save 190 million Canadian dollars by scaling down its expansion plans. On the back of these events, let’s see what analysts expect from Aurora.
Analysts’ take on Aurora’s EBITDA
As reported by Cantech Letter on November 18, PI Financial analyst Jason Zandberg expects Aurora Cannabis to report positive EBITDA in fiscal 2021. He expects the company to report EBITDA of -93.8 million Canadian dollars in fiscal 2020.
However, Zandberg expects the company’s EBITDA to reach 144.0 million Canadian dollars. According to a November 18 MarketWatch report, Jeffries analyst Owen Bennett doesn’t expect the company to report positive EBITDA this fiscal year.
Analysts’ consensus estimates project Aurora Cannabis to report negative EBITDA in the next four quarters. However, they expect the company to report positive EBITDA starting in the second quarter of fiscal 2021, which ends in December 2020.
For Q2 of fiscal 2021, analysts expect the company to report EBITDA of 8.85 million Canadian dollars. For fiscal 2021, analysts’ consensus EBITDA estimates stand at 72.76 million Canadian dollars. Aurora Cannabis has missed analysts’ EBITDA estimates in the last five quarters.
Among Aurora Cannabis’ peers, analysts expect Canopy Growth (CGC) (WEED) to report positive EBITDA in the first quarter of 2020. Analysts expect HEXO (HEXO) to report positive EBITDA in the first quarter of 2021. On the other hand, Aphria (APHA) has already reported positive EBITDA in its last two quarters.
Of the 17 analysts that follow Aurora, three favor a “strong buy” rating, while five recommend a “buy” rating. Seven analysts rated the stock as a “hold,” while two gave “sell” recommendations.
Analysts’ consensus price target stands at 5.72 Canadian dollars, implying a return potential of 78% as of December 6. Last month, CNBC Mad Money host Jim Cramer was bearish on the cannabis space. For more, read Jim Cramer: Stay Away from Aurora Cannabis.
ACB’s 2019 stock performance
This year, Aurora Cannabis has underperformed its peers and the broader equity market. Year-to-date, ACB stock has lost 52.7% of its stock value as of December 6. It appears that weak performance in its last two quarters and investors’ fear of dilution over the early conversion of its debentures ACB stock caused its stock to fall.
Despite this decline, Aurora Cannabis’ management expressed optimism about its growth prospects. For more, please read Aurora Cannabis’s Near-Term Management Outlook.
Meanwhile, the cannabis space has been under pressure this year due to mounting operating expenses, vaping-related deaths, and persistent black market sales. Year-to-date, Canopy Growth, Aphria, and HEXO have fallen 32.5%, 20.8%, and 40.8%, respectively. However, the S&P 500 Index rose 25.5% during the same period. Please check 420 Investor Daily for more marijuana-related news and updates.