Aurora Cannabis is still a buy, Laurentian Bank Securities says

Following the release of Q2 guidance, Laurentian Bank Securities analyst John Chu is maintaining his “Buy” rating on Aurora Cannabis (Aurora Cannabis Stock Quote, Chart TSX:ACB).

On Tuesday, ACB reported its expected revenue range for the second quarter. Management said it thinks revenue will come in between $50-million and $55-million, compared with $11.7-million for the same period last year. The company also reaffirmed its expectation of at least 150,000 kg/annum of production capacity within the first calendar quarter of 2019.

“Aurora continues to execute effectively across all market segments, as demonstrated by its revenue growth anticipated to exceed 68 per cent as compared to last quarter, supported by continued strong performance in the Canadian adult consumer use market,” CEO Terry Booth said. “Our consistent and high-quality production continues to significantly ramp up as expected, fuelling even further growth. Going forward, we see sustained strong demand from the adult usage market, as evidenced by public statements from the Canadian provinces, as well as strong patient-driven demand for medical cannabis in Canada and abroad. These factors, together with our focus on disciplined management of operating expenses, and our growing portfolio of higher-margin products, put us in a position to rapidly achieve positive EBITDA within the next two quarters.”

Chu updated the production capacity against his expectations.

“Production capacity continues to improve and currently sits at ~100,000 kg/annum, which is up from ~70,000 kg/annum in Nov/18,” the analyst notes. “ACB reaffirmed it should hit at least 150,000 kg/annum by Q3/F19 (ending Mar/19). This pace is slightly behind our expectations of ~240,000 kg/annum by YE F2019 (ending June). We believe our F2019 sales estimate of $337M is conservative (consensus of $372M), which represents ~39,000 kg of sales volume (or ~16% of our estimated F2019 production capacity exit rate). While the production ramp is slower than our expectations, our low capacity utilization rate is such that we remain comfortable with our sales volume forecast at this time.”

Chu notes that ACB should be profitable by the fourth quarter.

“The company is focused on cost management and estimates SG&A costs to be consistent with the previous quarter and should include a full quarter of costs related to various subsidiaries (MedReleaf, Anandia and Agropro). ACB also anticipates higher-margin products such as softgels and vape-ready CBD oil cartridge products to contribute to strong gross margins in F2019; this, combined with its cost management focus, should drive sustained positive EBITDA commencing in Q4/F19 (ending June/19). The timing of sustained positive EBITDA is consistent with our forecast as well.”

In a research “Flash” update to clients Wednesday, Chu maintained his “Buy” rating and one-year price target of $8.50 on Aurora Cannabis, implying a return of 27.2 per cent at the time of publication.