Earnings

Earnings preview: will Aurora’s share price go up in smoke?

The first earnings report of the year from Aurora Cannabis will have investors keen to see if the company can pull itself out of the steep share price lows it experienced in 2019.

Aurora [ACB] had a dramatic 2019 in which saw its share price go up in flames, dropping by more than 55%. 

The company’s inability to turn a profit since its 2018 NYSE IPO, as well as the fact it has missed revenue forecasts in the last two quarters, has left investors disgruntled throughout the year, with some even filing class action lawsuits against the company.

Although it’s not the only cannabis company struggling — many in the sector have been on a downward spiral since the beginning of April 2019 — Aurora is one that critics have been betting against more fervently than others. This January it failed to keep up with peers, its share price dropping a further 12.5% in value.

Ahead of its first earnings report of 2020, investors will be curious to see if the company is taking action to improve its prospects for the year.

 

What happened in previous quarters?

When Aurora posted Q1 2020 results on 14 November, its share price dropped by more than 19%. The company reported a total net revenue of CA$75.2m, a 24% decline from the previous quarter. Sales to consumers fell by 33% quarter-over-quarter to CA$30m, while wholesale bulk revenue plunged 49% from the previous quarter to CA$10.3m. 

Aurora’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) highlighted the company’s widening losses, coming in at a loss of CA$39.7m compared to the previous quarter’s loss of CA$26.6m. The company attributed its EBITDA performance to a slowdown in revenue growth. 

The results were not just disappointing, some shareholders claimed, they were “materially false and misleading”. Shortly after Q1 results were posted, shareholders filed a class action lawsuit against the company for never giving a hint that there would be a substantial decrease in sales for the quarter. 

Shareholders were also perturbed by Aurora’s announcement that it was halting spending on construction of production facilities in Alberta, Canada, and Odense, Denmark six weeks after it made optimistic statements about the upcoming completion of the same facilities.

24%

Aurora's total net revenue decline in Q1 2020

 

Taking action

Recent difficulties have led Aurora to go through a process of reorganisation. Although there has been no formal announcement the company listed its Exeter, Ontario facility for sale in early January in a bid recover some cash.
Chief corporate officer Cam Battley also stepped down after the Q1 results. Although the share price was down on the news, some investors believe a reshuffle at the company could be positive.

Pablo Zuanic, managing director at Cantor Fitzgerald, believes a reshuffle could lead to the stock doubling its share price in the future. He says to do so Aurora needs to push billionaire strategic advisor Nelson Peltz into a more active role from his board position. He also believes the company needs to hire a CEO.

 

Analyst view

Consensus forecasts expect Aurora to post a quarterly loss of $0.04 per share for Q2, according to Zacks Equity Research. This represents no change from the year-ago quarter. Revenues are expected to be $62.22m, up 52% from the year-ago quarter.

Aurora itself expects second-quarter revenue to come in between $50–55m.

$62.22million

Expected revenues for Q2

GLJ Research’s Gordon Johnson put an extraordinary $0 price target on Aurora stock in December, arguing that the stock would be worthless by the end of 2021.

In January, Piper Sandler downgraded its rating to sell from a hold. It also lowered its 12-month price target to $1 from $3. The new price target represents a potential 50% loss on Aurora’s 6 February closing price of $2. 

Among the 19 analysts that follow Aurora Cannabis, seven recommend buy, seven recommend hold, and five recommend sell. Overall, analysts have a target price of CA$4.48, which implies a 12-month return potential of 68.6%, according to Market Realist.

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