Take a pass on ACB stock (TSX:ACB), says Roth

Steady but not exciting — that’s the take on the latest quarter from beleaguered Canadian cannabis stock Aurora Cannabis (Aurora Cannabis Stock Quote, Charts, News, Analysts, Financials TSX:ACB), according to Roth Capital Partners analyst Bill Kirk, who reported on the company on Thursday and maintained a “Neutral” rating on the stock.

Edmonton-based Aurora Cannabis announced its fiscal third quarter 2023 results on Wednesday for the period ended March 31, 2023. The company posted net revenue up 27 per cent year-over-year and up four per cent sequentially to $64 million. 

Medical cannabis made up 59 per cent of ACB’s revenue at $38 million, while adult-use cannabis sales were flat at $14.5 million. Plant propagation net revenue was $10.8 million, and the quarter featured a net loss of $87 million compared to a loss of $67.2 million over the previous quarter.

“We are proud to have delivered our second sequential quarter of positive Adjusted EBITDA1 in Q3 2023, demonstrating our commitment to financial discipline. Over the last three years, our ongoing business transformation initiatives have delivered ~$400 million in annualized cost savings that have significantly reduced cash used in operating activities,” said CEO Miguel Martin in a statement.

On the quarterly results, Kirk said the $64.0 million topline was above his estimate at $61.2 million, while adjusted EBITDA of positive $0.3 million was below his forecast at positive $1.2 million. 

“With the profit seasonality of Bevo (strongest January to June), Aurora looks poised to stay at, or near, adjusted EBITDA profitable. The company expects to be positive free cash flow by the end of calendar 2024, but we believe shifting European market production to Canada could cause more volatile expense periods. We reiterate our Neutral rating but are intrigued by EBITDA profitability and valuation at ~1x EV/Sales,” Kirk wrote.

Kirk said Aurora is enjoying the relative stability of the Canadian medical cannabis market which at the same time recognizing international opportunities as they arise. He said ACB’s balance sheet is much improved and there’s a possibility for M&A activity to build out its presence in Europe.

At the same time, Kirk argued that the company has had limited adult-use success in Canada, with a dim path towards winning new adult-use markets.

“We don’t think Canadian-grown product can compete in other international markets, nor do we expect a struggling Canadian LP (regardless of possible regulatory changes) to be a leader in the US,” he said.

With the update, Kirk maintained a 12-month target on ACB of $0.80 per share, which at press time represented a projected return of 14 per cent.