Aurora Cannabis is no longer a buy, Canaccord Genuity says

In the lead-up to legal recreational marijuana in Canada, Aurora Cannabis (TSX:ACB) has been making all the right moves, but with its share price at $11.30, the stock is now fully valued, says analyst Neil Maruoka of Canaccord Genuity, who on Friday lowered his recommendation from “Speculative Buy” to “Hold.”

Aurora has been quite busy of late, having announced a deal to supply medical marijuana to pharmacy giant Shoppers Drug along with securing itself in the province of Alberta’s future rec market through the purchase of a 19.9 per cent stake in Liquor Stores NA Ltd.

Even bigger than those deals was the recently completed acquisition of Saskatoon-based CanniMed Therapeutics, a move which will strengthen ACB’s grasp of the medical cannabis market, says Maruoka.

“With the addition of CanniMed, we have assumed a leading 18.0 per cent medical market share in Canada (increased from 10 per cent),” says the analyst in a research update to clients on Friday. “We believe that CanniMed’s established medical business will be immediately additive to Aurora’s. Coupled with robust pharmacy sales channels, we believe the combination will eventually create a dominant medical franchise.”

Those deals cause Maruoka to revise his estimates for Aurora, now forecasting 2019 revenue at $336.2 million (previously $283.4 million) and 2019 EBITDA at $134.2 million (previously $122.0 million).

Accordingly, the analyst has raised his target price for ACB to $11.00 per share, making the stock already fully priced.

“Following Aurora’s share price appreciation over the past four months, the company currently trades at 28.3x our updated two-year forward EBITDA forecast,” says the analyst. “This compares to the average for its larger peers of 20.3x, and [Canopy Growth’s] multiple (our other HOLD-rated stock amongst this group) of 24.7x. Although we believe that Aurora should trade at a premium to peers, at current levels, we believe the stock is fairly valued.”

“We look to Aurora’s production ramp at Aurora Sky, execution of its international strategy by securing a domestic production license in Germany, and recreational sales growth as drivers of upside to our valuation,” says the analyst.

Maruoka’s recommends a “Hold” on ACB and a price target of $11.00, representing a negative 2.7 per cent return on investment at the time of publication.