What Will Drive Aurora Cannabis' Value Most? Analyst's Thoughts Ahead Of Q1 Earnings Report

Over the last year, Aurora Cannabis Inc. ACB ACB was involved in the undertaking of its so-called 'business transformation plan' following the retirement of former CEO Terry Booth.

Some of its most recent international initiatives included a nearly CA$8 million cannabis shipment to Israel and an extension of its collaboration with a UK-focused biopharmaceutical company, Grow Group PLC, through its EU subsidiary Aurora Germany GmbH. The two companies inked a two-year market access services agreement for the U.K.

In August, Aurora Germany GmbH and Ethypharm reported delivering their initial shipment of cannabis to France's medical cannabis pilot program.

Continued growth in the international medical business resulted in a 9% year-over-year increase in medical cannabis net revenue.

At the same time, according to the company's fourth-quarter fiscal 2021 report, consumer cannabis net revenue plunged 45% year-over-year.

And though BofA's Heather Balsky claims that Aurora's medical business is attractive and stresses that "the consumer cannabis market will be the key industry growth and valuation driver long-term," Cantor Fitzgerald's Pablo Zuanic has been asking whether getting out of domestic recreational cannabis would make more sense for the company.

The Analyst

In his recent Thursday note, ahead of Aurora's first-quarter earnings report set to publish on Nov. 11, Zuanic projected a roughly 22% sequential drop in recreational sales for the period, as the company's domestic recreational "market share erosion is well known."

Zuanic increased his price target to CA$9.60 ($7.75) from CA$9.50 on Aurora's stock while maintaining a neutral rating.

Domestic Medical Market And Exports Will Bring Value

"Despite ongoing rec share loss, ACB shares are stabilizing," Zuanic said, adding that the "stock is flat over the last three months compared with a 17% drop in the YOLO (NC) ETF and -21% for the ETFMG Alternative Harvest (NC) ETF."

The analyst noted that Aurora still holds the first position in the domestic medical market, though, in terms of export it is second to Tilray Inc. TLRY, among Canadian LPs.

In their most recent quarterly reports regarding export earnings, Tilray disclosed approximately CA$13 billion, Aurora CA$8.6 million and Canopy Growth revealed CA$4.8 million.

"We estimate at present the medical cannabis business accounts for 84% of gross profits," Zuanic added. "In an M&A scenario, the medical franchise alone (domestic and exports) could be worth more than the current EV of CA$1.65Bn."

ACB Price Action

Aurora's shares traded 1.39% higher at $6.93 per share at the time of this writing Thursday late morning.

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