Aurora Cannabis: Analysts Cut Target Prices after Its Q2 Earnings

Aurora Cannabis (NYSE:ACB) reported its results for the second quarter of fiscal 2020 after the market closed on February 13. For the quarter, the company reported revenues of 56.0 million Canadian dollars. Meanwhile, the EBIT was negative 80.25 million Canadian dollars. Both of the figures fell short of analysts’ expectations. To learn more, read Aurora Cannabis Missed Analysts’ Expectations in Q2.

Despite missing analysts’ estimates, the company’s stock price rose 5.1% on February 14. Investors expected Aurora Cannabis’s second-quarter performance to be much worse. Let’s look at analysts’ target prices and their recommendations after the company’s second-quarter earnings.

Aurora Cannabis: Analysts Cut Target Prices after Its Q2 Earnings

Analysts’ target price for Aurora Cannabis

Compared to investors, analysts weren’t as impressed with Aurora Cannabis’s second-quarter performance. Following the second-quarter earnings, CIBC and Canaccord Genuity lowered their target prices. CIBC cut its target price from 2.50 Canadian dollars to 2.25 Canadian dollars. Canaccord Genuity lowered its target price from 3 Canadian dollars to 2.25 Canadian dollars. Overall, analysts have an average target price of 2.94 Canadian dollars as of February 14. The target price implies a 12-month return potential of 42.5%.

On the same day, Canopy Growth (NYSE:CGC), Aphria (NYSE:APHA), and Cronos Group (NASDAQ:CRON) were trading at a discount of 5.1%, 105.8%, and 23.8%, respectively.

Analysts’ opinions

As reported by Cantech Letter on February 13, David Kideckel of AltaCorp Capital maintained its “sector perform” rating and target price of 2.80 Canadian dollars. In his update to clients, Kideckel wrote that Aurora Cannabis’s second-quarter performance was “neutral” to its investment thesis, as reported by Cantech Letter. He said that if the company manages to execute the plan to lower its cost and preserve its capital position, it could achieve operating profitability and positive free cash flows in fiscal 2021. So, he thinks that management’s initiatives could position the company for the next phase of growth.

As reported by MarketWatch on February 14, Jason Zandberg of PI Financial wrote that the rising demand for cheaper cannabis drove cannabis prices down. He said that the pricing pressure had a negative impact on Aurora Cannabis’s margins. Also, he thinks that pricing pressure could make it difficult for Aurora Cannabis to achieve a positive EBIT before the end of this fiscal year. The company agreed to get secured loans of 162 million Canadian dollars.

As reported by MarketWatch, Zandberg said, “Aurora faces a lot of headwinds. When you start to see the price of cannabis decline, it’s going to be harder to hit that [Ebitda] milestone. They’re not especially cash-rich for an organization of its size, and there are a lot of factors at play here.”

Analysts’ ratings for Aurora Cannabis

Since Aurora Cannabis reported its second-quarter earnings, there hasn’t been a change in analysts’ ratings. As of February 14, analysts continue to favor a “hold” rating for the stock. Among the 19 analysts that follow Aurora Cannabis, 13 recommend a “hold,” two recommend a “buy,” and four recommend a “sell.” However, compared to the January 14, analysts have turned significantly pessimistic about the stock. On January 14, eight analysts recommended a “buy,” seven recommended a “hold,” and five recommended a “sell.”

Let’s look at analysts’ rating for Aurora Cannabis’s peers:

  • On February 14, Canopy Growth reported an impressive third-quarter performance. However, analysts still recommend a “hold” rating for the stock. Among the 21 analysts, 12 recommend a “hold,” eight recommend a “buy,” and one recommends a “sell.”
  • Currently, 15 analysts follow Aphria, 11 recommend a “buy,” while four recommend a “hold.” None of the analysts recommend a “sell.”
  • Among the 13 analysts that follow Cronos Group, five recommend a “buy,” seven recommend a “hold,” and one recommends a “sell.”