Aurora Cannabis (ACB) provided investors with a business update on Wednesday and Jefferies analyst Owen Bennett has been sifting through the news.
Did the latest developments do anything to alter Bennett’s bearish thesis? Let’s take a look.
Aurora’s update included the announcement of better credit facility terms, with C$116 million of debt obligations (from the overall C$288 million) now due in December 2022 instead of at the end of Aug 2021.
The new terms, Bennett says, give Aurora “greater flexibility around the debt,” and help address “near-term liquidity concerns somewhat.”
The company also confirmed it will close its Sun facility and will reduce production at its Sky facility by 75%, based on a “decision to move to a more variable cost structure.”
Bennett says the pivot toward the variable cost structure “appears to be driven by requirements of the debt holders vs what is best for top line.”
What’s more, it also means an increase to “third-party supply” channels, from which the product will go toward the company’s “value portfolio.” At the same time, the company will keep on using the pared back Sky facility for its premium products.
Overall, the analyst does not see the latest developments as offering evidence of a meaningful turnaround.
“While we are fully behind the potential cost and margin benefits from [the] update, for us it just adds more risk and uncertainty to near-term market share trends,” Bennett said. “Aurora has a significant presence in the below-premium price segments. There is no guarantee it can ensure quality and consistency as it moves to third-party supply, and therefore as this transition takes place we could see some volatility.”
There’s no change, then, to Bennett’s rating, which stays an Underperform (i.e. Sell). The analyst’s C$4.93 (US$3.87) price target represents a steep 60% drop from current levels. (To watch Bennett’s track record, click here)
The view from the rest of the Street is hardly any rosier. Based on 10 Holds and 4 Sells, ACB has a Moderate Sell consensus rating. Going by the C$9.66 (US$7.6) average price target, the stock will be changing hands at a 19% discount a year from now. (See Aurora stock analysis 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.
