Aurora Investors Aren't Feeling The Buzz After Q4 Print: 2 Analyst Takes

Canadian cannabis company Aurora Cannabis Inc ACB reported fourth-quarter results Wednesday that fell short of the company's own expectations and received a mixed review from two Street analysts.

The Analysts

Canaccord Genuity analyst Matt Bottomley maintained a Speculative Buy on Aurora's Toronto-listed stock with an unchanged CA$13.50 price target. 

Bank of America Merrill Lynch analyst Christopher Carey maintained at Neutral with an unchanged CA$11 price target.

Canaccord: Impressive Growth Metrics

Aurora's earnings report was mostly in-line with expectations and signaled impressive growth, Bottomley said in a Wednesday note. Revenue of CA$98.9 million fell short of expectations, but that could be attributed to a higher-than-expected proportion of revenues from the ancillary business that ended up servicing the company directly, which resulted in intercompany eliminations to revenue, the analyst said. 

On the other hand, cannabis net sales of CA$94.6 million rose 61% from the prior quarter and beat expectations of CA$92.7 million, he said.

Coupled with an 86% increase in cannabis harvested to 29,034 kg, the company likely boasts the highest market share across Canada, Bottomley said. 

Looking forward, Aurora should be able to expand production to around 38,000 kg per quarter, which represents nearly CA$200 million of potential revenue at current prices, the analyst said. 

Finally, Aurora's CA$114 million of inventory on hand should give it the ability to compete in the "Cannabis 2.0 market" as new products like edibles come online in the coming months, according to Canaccord. 

Related Link: Tim Seymour Previews Aurora Cannabis Earnings

BofA: Cash Burn A Concern

Aurora's earnings includes some positive takeaways, including cannabis net revenue growth of 61% on a 94% increase in kilograms sold, Carey said in a Thursday note.

Yet the company missed its own revenue expectations, which were detailed to investors in August, the analyst said. 

Granted, the revenue miss wasn't that large, but it could "dent confidence" in any go-forward expectations, he said.

In fact, Aurora shied away from issuing any guidance for the new fiscal year, other than it expects EBITDA to "improve" in the future, Carey said. 

Free cash flow during the quarter worsened from negative CA$151 million in the prior quarter to negative CA$172 million, while capex spend moved higher.

Firsthand conversations with Aurora's management suggested there will be "sustained spending," the analyst said. 

The company may need to seek new financing via its $400-million money equity provision, which would dilute the stock further, according to BofA. 

Price Action

U.S.-listed Aurora shares were trading down 8.42% at $5.92 at the time of publication Thursday. 

Related Link: 2019: A Year Of Cannabis M&A Deals