Aurora Cannabis Analyst Sees Power In Restructuring, Still Projects Stock Volatility

Over the last six months, Aurora Cannabis Inc. ACB shares have fallen 73.28%.

The Aurora Cannabis Analyst

Needham analyst Matt McGinley initiated a Hold rating on Aurora with a price target of $1.50.

The Aurora Cannabis Thesis

The Canadian cannabis market has seen too many investments so far, outpacing market development, which has further caused the need for infrastructure rationalization. To make it in these circumstances, McGinley says Aurora has set up itself as a "low cost producer with toeholds in many markets."

Nevertheless, the company is still unprofitable, and just like the competition, it's now forced to desperately minimize its operating structure while working on boosting its revenue at the same time.

McGinley still sees a possibility for the company to reach a positive EBITDA by 2021, pointing out that "any shortfalls in cost reduction or market development places the company at liquidity risk in 2H20."

"Over two quarters, ACB must cut SG&A by 50%+ to $45mn, sustain a 50%+ GM, and grow revenue 33% to $90mn to meet positive EBITDA loan covenants," he wrote in the note.

The analyst thinks that things in Aurora's hands, like restructuring. will have more power than industry revenue growth in the near future, but he also projects harsh stock volatility.

"While industry valuation mean reversion is likely, ACB’s near-term cuts likely matter more than revenue, and we view carrying a 50%+ borrow as difficult and likely to create high levels of volatility for ACB equity."

ACB Price Action

Aurora's stock was trading lower by 1.9% to $1.52 per share at time of publication.

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