The near-term may not look so rosy but the long-term prospects for Canadian licensed producer Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB) are excellent, according to analyst David Kideckel of AltaCorp Capital, who launched coverage of the stock on Wednesday with a “Sector Perform” rating and $5.00 price target.
Like the rest of the cannabis sector, Aurora has been battered around over the past half year. The stock has lost 77 per cent of its value since mid-March and has reached lows not seen since the earlier days of the cannabis rush in late 2017.
But Kideckel said Aurora’s position as a major cannabis company in both the consumer and medical markets is noteworthy.
“We are positive about ACB’s long-term outlook, given its revenue growth and profitability potential, driven by the launch of cannabis derivatives in Canada as well as the Company’s ability to capitalize on international medical cannabis and hemp-derived CBD opportunities,” wrote Kideckel.
“We believe that Aurora will maintain a sustainable competitive advantage over the long term, driven by its emphasis on innovation through its investment in the Cannabis Innovation Centre (CIC), which focuses on plant genetics, and in Aurora Prairie, which focuses on developing cannabis R&D activities,” he said.
Edmonton-based Aurora, which began as a public company in 2014 and received its first license to produce medical cannabis in 2015, currently boasts a geographic footprint across 25 countries, with 15 production facilities worldwide and an annual production capacity expected to reach 625,000 kg by mid-2020. The company has grown both organically and through acquisitions and, by Kideckel’s estimates, currently has the second-largest share of Canada’s recreational market at 19 per cent.
Kideckel contends Aurora is poised to do well in the upcoming cannabis derivatives market, in part resting his opinion on Aurora’s record of accomplishments during the first year of rec legalization in Canada but also through the high ranking of ACB’s products on store shelves in Ontario (Aurora products have the top three positions in the Ontario Cannabis Store ranking of best-selling products), which bodes well for brand recognition going into the edibles and derivatives market.
Other parts of Kideckel’s investment thesis point to Aurora’s global medical segment, where the analyst says that ACB is ahead of its peers with well-known medical cannabis brands, and the company’s R&D including cannabis breeding and genetic research, which makes up Aurora’s keen focus on innovation, according to Kideckel.
At the same time, the analyst is circumspect on the stock over the near term due to industry-wide headwinds related to the slower than expected store rollout across Canada and the current imbalance between supply and demand.
“We believe Aurora’s long-term outlook is robust as the Company is well positioned to gain a meaningful market share in the Canadian legal cannabis segment and capitalize on medical cannabis international opportunities. However, our Sector Perform rating reflects the near-term uncertainty related to regulatory bottlenecks impacting the overall Canadian cannabis market,” Kideckel wrote.
Looking ahead, the analyst thinks ACB will generate fiscal 2020 revenue of $361 million and adjusted EBITDA of negative $100 million and fiscal 2021 revenue of $524 million and adjusted EBITDA of negative $54 million. Kideckel’s $5.00 target represented a projected return of 75 per cent at time of publication.