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ACB Made Analysts Skeptical, Stock Took a Massive Hit

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Aurora Cannabis (NYSE:ACB) started 2020 with a lot of bad news. The company announced job cuts last week, which impacted its profitability. On February 7, the company announced that its CEO is retiring. Aurora Cannabis also released its preliminary results for the second quarter. The stock took a massive hit and fell 15% on February 7. Now, analysts are bearish on the stock.

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Analysts are skeptical about ACB 

Market Watch report discussed how analysts are skeptical about ACB after a string of negative news. Stifel analysts, led by Andrew Carter, reduced Aurora Cannabis’s target price to 1 Canadian dollar with a “sell” rating. MKM analyst Bill Kirk is also holding his “sell” rating and target price of 2 Canadian dollars.

Kirk said, “Unlike Canopy (CEO termination July 2019), who could draw on Constellation Brands Inc. talent for staffing needs, Aurora will have a hard time attracting the talent necessary to instill investor confidence.”

Meanwhile, Jefferies has a “hold” rating on ACB stock and a target price of 2 Canadian dollars per share. CIBC reduced the target price for ACB to 2.5 Canadian dollars from 5 Canadian dollars.

PI Financial downgraded the stock

Cantech Letter discussed how PI Financial analyst Jason Zandberg felt that ACB’s negative news wasn’t expected. The analyst said, “[The announcements] paint a picture of a company in financial difficulty. ACB’s creditors have given them two-quarters of leeway before the EBITDA covenant kicks in, which may be difficult given the current upheaval.” PI Financial lowered the target price for ACB to 2 Canadian dollars from 6 Canadian dollars. Zandberg also downgraded the stock to “neutral” from “buy.”

Previously, I discussed how analysts doubt whether ACB will be able to hit positive profitability soon. As a result, analysts reduced their revenue, gross margin, and EBITDA estimates for ACB for fiscal 2020 in February. Analysts also lowered the forecast for fiscal 2021. 

PI Financial analysts also lowered the revenue estimate to 51.0 million Canadian dollars for the second quarter and 66.8 million Canadian dollars for the third quarter. For the fourth quarter, analysts think that the revenue might increase a little sequentially to 81.9 million Canadian dollars.

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However, for fiscal 2020, analysts lowered the revenue estimate from 857.4 million Canadian dollars to 481.0 million Canadian dollars. Many factors could determine how the cannabis space turns out in 2020. Rolling out legal stores in Canada could help the company recover losses. Also, if US federal legalization turns around or if more US states legalize marijuana, it could benefit Canadian cannabis companies.

ACB’s bleak outlook 

On February 7, Aurora Cannabis announced that CEO Terry Booth stepped down. Michael Singer will serve as the interim CEO. In the preliminary results for the second quarter, Aurora Cannabis said its cannabis revenue could be around 62 million–66 million Canadian dollars. The company announced 500 full-time job cuts that included 25% of its corporate positions. To reduce capital expenditures, the company also announced that it’s evaluating its current investment projects. Aurora Cannabis will be making some hard decisions.

Last week, the company announced that it will cut 10% of its workforce, especially consultants that the company hired on a contract basis. On February 7, the 25% cut from the workforce was bad news.

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Stock took a massive hit

Until February 5, ACB stock performed well and had gained 12% in February. However, the news on February 7 impacted the stock. The string of negative news and leadership changes aren’t good for the stock. Analysts and investors were already skeptical about the company’s growth after it continued to report negative EBITDA in the last two quarters last year. Also, the departure of Cam Battley, ACB’s chief commercial officer, created doubts about the company’s position in the cannabis sector. In 2020, the stock has fallen 21.3% YTD (year-to-date).

ACB’s news impacted the entire cannabis sector. On February 7, Canopy Growth stock fell by 7.2%, while Hexo fell 3.7%. Aphria (NYSE:APHA) fell 3.8%, while OrganiGram and Cronos Group (NASDAQ:CRON) fell 3.4% and 1.8%.

Aurora Cannabis will report its second-quarter results on Thursday. We’ll know more about the company’s plans and strategies. Canopy Growth (NYSE:CGC)(TSE:WEED) will report its third-quarter results on Friday.

Analysts expect revenue of 108.3 million Canadian dollars in the third quarter. Also, the EBITDA loss could be around 110.1 million Canadian dollars. Aurora Cannabis and Canopy Growth are the two big players in the cannabis space. As a result, their earnings results and outlook for the future determine the cannabis industry’s strength and position.

Stay with us for a detailed analysis of Aurora Cannabis’s second-quarter results and more on the cannabis sector.

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