Yesterday, MarketWatch reported that Piper Sandler had downgraded its rating for Aurora Cannabis (NYSE:ACB) to “sell” from “hold.” It also lowered its 12-month price target to $1 from $3. Piper Sandler blamed Aurora’s weakening cash position and European Union sales for the downgrade. The new price target is 46.2% lower than its January 9 stock price of $1.86.
As reported by MarketWatch, Michael Lavery of Piper Sandler wrote that his team projects Aurora won’t post positive cash flow until fiscal 2021’s third quarter. Therefore, they expect the company’s interim cash deficit to be 200 million Canadian dollars. Also, the report added that ACB needs 360 million Canadian dollars to refinance debt that matures in August 2021. As a result, Piper Sandler’s team expects the company to have 800 million Canadian dollars in debt in fiscal 2022’s second quarter. It foresees the company having 30 million Canadian dollars in cash. However, the research report added that Aurora could consider selling its assets to improve its cash position.
Apart from financing issues, Aurora is facing sales problems. As reported by MarketWatch, Lavery wrote that Germany has halted Aurora’s sales until it receives additional authorization for its sterilization process. To learn more, read Why Did Germany Halt Aurora Cannabis’s Sales?
Furthermore, in his research, Lavery wrote, “German sales have been its highest priced and highest margin products, so the suspension of sales there hurts its revenue and margin mix.” However, Lavery is optimistic about the company’s Cannabis 2.0 products. Let’s look at other analysts’ opinions.
Other analysts’ views on Aurora
As of yesterday, 20 analysts cover ACB, compared with 17 analysts as of December 9. Last month, AltaCorp Capital, GLJ Research, and Laurentian Bank Securities initiated coverage of ACB. On December 19, Cantech Letter reported that AltaCorp had initiated the coverage of ACB with a “sector perform” rating and a 12-month price target of 5 Canadian dollars. On December 18, Yahoo Finance reported that GLJ had initiated coverage of ACB with a “sell” rating and a price target of $0. And on December 17, Laurentian Bank Securities initiated coverage with a “buy” rating and target of 4.75 Canadian dollars, according to Yahoo.
Overall, analysts’ recommendations on the stock are mixed. Of the 20 analysts covering ACB, eight suggest “buy,” eight suggest “hold,” and four suggest “sell.”
As of yesterday, analysts’ average target for ACB was 4.68 Canadian dollars, which implies a 12-month return of 93.3%. Their target has fallen 16.1% from last month’s target of 5.58 Canadian dollars. On December 23, Jefferies lowered its price target from 7 Canadian dollars to 3 Canadian dollars. Jefferies’s price cut and GLJ Research’s zero price target may have dragged down the average target.
Analysts’ opinions on Aurora Cannabis
As reported by Cantech Letter, AltaCorp is bullish on Aurora despite near-term challenges such as slow new-store openings in Canada and an excess cannabis product supply. David Kideckel of AltaCorp wrote, “We believe Aurora’s long-term outlook is robust as the Company is well positioned to gain a meaningful market share in the Canadian legal cannabis segment and capitalize on medical cannabis international opportunities.” He added, “However, our Sector Perform rating reflects the near-term uncertainty related to regulatory bottlenecks impacting the overall Canadian cannabis market.”
Piper Sandler downgraded Aurora after markets closed yesterday. And in premarket trading today, the stock was trading 7.3% lower. Aurora has been going through a rough period. As of yesterday, the stock had fallen 72.6% since the beginning of 2019. The company’s weak performance in the last two quarters, management’s decision to scale down in expansion plans, fear of dilution from early debenture conversion, and weakness in the cannabis sector appear to have dragged down the company’s stock.
Meanwhile, peers Canopy Growth (NYSE:CGC), Cronos Group (NASDAQ:CRON), and Aphria (NYSE:APHA) have fallen by 25.7%, 36%, and 19.6%, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has fallen by 32.9%. Please visit 420 Investor Daily for more cannabis news.