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Aurora Cannabis Analyst Welcomes Restructuring, But Sales Trends Are 'Disappointing'

A slew of material announcements led to a trading halt on Aurora Cannabis Inc (NYSE: ACB) Thursday afternoon.

Benzinga · 02/07/2020 17:50

A slew of material announcements led to a trading halt on Aurora Cannabis Inc (NYSE: ACB) Thursday afternoon. Management announced 500 layoffs, the departure of CEO Terry Booth, expectations of asset impairment charges, and amendments to its secured credit facilities.

Shares plunged during the day and Cantor Fitzgerald sympathized with selling shareholders — but for uncommon reasons.

The Aurora Analyst

Pablo Zuanic maintained an Overweight rating on Aurora but cut his price target from CA$5 to CA$3.75.

The Aurora Thesis

Zuanic’s concern with Aurora had more to do with financials than with any major alterations.

"We welcome ACB's restructuring announcements (Peltz at work?), greater financial discipline, covenant changes, and search for a new CEO," he wrote in a note. "But sales trends for December and March are disappointing."

See Also: Tilray, Aurora Cannabis Layoffs May Signal Industrywide Problem

Sales guidance for the December quarter fell below previously flat projections. Outlook for the March quarter included flat sales growth against consensus estimates of 29%. The figures deflated expectations that first-mover Aurora would benefit from cannabis 2.0.

"The company recognizes it has lost share in the value flower segment (>22% THC), where the market has seen significant growth,” Zuanic wrote. "If extrapolated, i.e., the notion of a rather thrifty Canadian cannabis consumer, this may bode badly for generally more-expensive derivative products."

Despite his disappointment, the analyst expects gross margin improvement from the operating leverage gleaned through Aurora’s new value flower line and cannabis 2.0 exposure.

ACB Price Action

At time of publication, Aurora Cannabis shares traded down 15.8% around $1.68.