Stock Analysis & Ideas

Aurora Cannabis: Global Positioning Merits an Upgrade

For a while now, the Canadian recreational cannabis market has been beset by a difficult operating environment while regulatory progress at the federal level in the U.S. has stalled. Both have been reasons why cannabis stocks have entirely lost their luster over the past year.

That said, Cantor analyst Pablo Zuanic thinks that another region could soon turn out to be the “main sector catalyst, by a long shot.”

“We expect Europe, and more specifically, Germany, to be a relevant potential catalyst and sentiment driver for cannabis stocks over the next 12-18 months,” the analyst opined.

Being one of only two publicly traded companies with licenses to grow weed in Germany, Zuanic thinks Aurora Cannabis (ACB) is particularly well-positioned to benefit from the European and German market’s anticipated growth (the other company being Tilray).

However, it is still to be determined whether the future German recreational market will allow for imports, while there are also set to be only a “limited number of new domestic production licenses issued to supply that future rec market.”

And there are several reasons why Zuanic favors Aurora over Tilray as a play on Germany cannabis. For one, at 1x CY23 EV/sales vs. 6x, Aurora’s valuation is more attractive. Two, with a net cash position of C$286 million, compared to TLRY’s net debt of US$431 million, it has a stronger balance sheet.

And given Aurora is all about cannabis compared to just 35% at Tilray while Canada rec now represents just ~20% of Aurora’s sales, Zuanic considers it to have “more ‘pure’ exposure.”

“True,” Zuanic concedes, “it could be said the recent US$173Mn equity/warrants raise (late May) by ACB was poorly timed, but we now see the stock drop (at the time it fell 40%, despite ‘only’ 20% dilution, or less if we account for convertible debt bought at a discount) as a buying opportunity.”

Accordingly, Zuanic upgraded Aurora’s rating from Neutral to Overweight (i.e., Buy) and raised the price target from C$3.90 ($3.02) to C$4.05 ($3.14). Should the figure be met, the shares’ value will more than double in the year ahead. (To watch Zuanic’s track record, click here)

Currently, though, Zuanic is the lone ACB bull on Wall Street; 6 other analysts remain on the sidelines, while one recommends to Sell, making the consensus view here a Hold. That said, most consider the shares as undervalued; going by the C$3.6 ($2.81) average target, they are anticipated to climb 81% higher over the one-year timeframe. (See Aurora stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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