That’s what PI Financial analyst Jason Zandberg thinks about the latest cuts at Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB).
On Thursday, ACB reported its Q3, 2020 results which detailed a round of cost saving measures, including capital expenditure cuts the company said were tracking below $25-million for the fourth quarter. The company posted net revenue of $75.5-million, which was up 25 per cent, quarter-over-quarter.
“I am incredibly proud of the Aurora team for working through these challenging times in order to maintain uninterrupted operations at all of our production facilities and ensure we continue to meet the needs of our patients and consumers,” interim CEO Michael Singer said. “I am also pleased that our third quarter 2020 financial results were in-line with our expectations, and that we remain firmly on track with the cost-savings and capex goals we detailed during our business transformation plan in February 2020.”
Zandberg says the revenue uptick was a pleasant surprise but adds that the company’s operating expenses require further deep cuts.
“Aurora management had guided that Q3 revenue would show modest growth on April 13. We would characterize the +35% qoq growth as robust,” the analyst said. “That said we have concerns with ACB’s ability to reduce expenses without cutting to the bone.”
In a research update to clients Friday, Zandberg lowered his one-year price target on Aurora Cannabis from $24.00 to $12.00 while maintaining his “Neutral” rating on the stock. The analyst thinks ACB will post Adjusted EBITDA of negative (162,728) on revenue of $284-million in fiscal 2020. He expects those numbers will improve to EBITDA of positive $15.5-million on a topline of $356.8-million the following year.
Zandberg says we could see a glut of product from ACB.
“ACB production was 36,207kg during the quarter but only sold 12,729kg,” Zandberg added. “This supply demand imbalance has been in place for several quarters and we anticipate the Company will continue to flood the market with low price flower. The biggest question with ACB is its cost structure which has made significant reductions already but still requires deep cuts.”
Meanwhile, ACB is on the hunt for a new CEO, something interim boss Michael Singer says is harder because of the COVID-19 pandemic.
“Thinking about a new CEO coming on board — they want to see Aurora Sky, they want to meet the people, versus doing the videos, but that’s not possible,” Singer said.
Singer said a candidate can have a look at the closed facilities with a drone tour and added that the board is comfortable hiring a new CEO without the benefit of an in-person meeting.
Aurora Cannabis was the top performing stock on the TSX Friday, rising 66.6 per cent to close at $15.35. The stock was rolled back on a twelve-for-one basis on May 11.