Stifel: Aurora's 'Bad' Q4 Extends Beyond Headline Numbers

Cannabis company Aurora Cannabis Inc ACB ACB reported fiscal fourth-quarter results last week that looked "bad" on the surface, but look even worse when digging beyond the headline numbers, according to Stifel.

The Analyst

W. Andrew Carter downgraded Aurora's Toronto-listed stock rating from Hold to Sell with a price target lowered from CA$7 ($5.29) to CA$5 ($3.78). 

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The Thesis

Aurora's shortfall in the quarter is evident due to a reported $20.1 million of bulk wholesale trim sales that are unlikely to repeat at the same level, Carter said in a Sunday downgrade note. (See his track record here.)

The headline net cannabis revenue of CA$94.7 million suggests a net cannabis revenue base closer to CA$75 million versus Stifel's estimate of CA$92.5 million.

The "lower quality" performance marks a reversal from the company's update in August, when it alluded to a strong in-market performance and a leadership position in Canada, the analyst said. 

Instead, the company recorded CA$44.9 million in adult use sales in Canada, which implies that it lags Canopy Growth Corp CGC, which reported CA$49 million in adult use sales, including a CA$6.5-million charge for potential returns, he said. 

Aurora's report suggests it is far removed from achieving profitability, and any sequential improvement in the reported quarter was "underwhelming" when considering unique events, like a CA$14.9-million benefit from accounting changes, Carter said. 

Looking forward, the analyst said he expects a "more muted" adult use market in the first half of 2020 and sees a likelihood of Aurora's sales hitting a plateau in the near-term.

Sales are likely to accelerate in the back half of the year from "Cannabis 2.0," but the Stifel is moving its full-year revenue target lower from CA$600 million to CA$485 million.

The EBITDA loss for fiscal 2020 was also revised from CA$32 million to a loss of CA$89 million.

The company is likely need to oversee a "significant" capital market raise before the end of the first quarter of 2020 and will ultimately find itself in a difficult position to aggressively invest in the U.S. market, according to Stifel. 

Price Action

Aurora's U.S.-listed shares were down 6.89% at $5.54 at the time of publication Monday. 

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