Will positive earnings brighten up the Aurora Cannabis’ stock price?

The Aurora Cannabis [ACB.TO] stock price got off to a good start at the beginning of the year, closing at CA$23.96 on 10 February — the day before its second-quarter earnings call. This marked an increase of 126% year-to-date for the stock, which hit a 52-week high of $24.10 during intraday trading.  

Despite the strong start, the cannabis company’s second-quarter results missed analysts’ expectations, sending the Aurora Cannabis stock down 13.7% to CA$15.80 on 12 February. This marked the start of a downward trend that continued until it reported its third-quarter earnings on 13 May. The Aurora Cannabis stock price closed at CA$8.29 on 14 May, down 21.8% in the year to date.

While Aurora Cannabis’ share price managed to recover some of its lost value over the following weeks, closing at CA$12.38 on 9 June, up 16.8% year-to-date, the stock took a turn for the worse, and it’s been tumbling downwards since. As of its last close of CA$8.40 on 16 September, the Aurora Cannabis stock price was down 20.7% year to date.

It’s worth noting that the cannabis sector has followed a similar trend. The ETFMG Alternative Harvest ETF [MJ] — of which Aurora is the third-largest holding, making up 6.57% of the fund — was up just 5.9% in the year-to-date as of its $15.20 close on 16 September. While the fund’s price hasn’t been hit as hard, it’s still a far cry from its close of $33.21, which it reached on 10 February.

As the company prepares to release its fourth-quarter earnings report on 21 September, will the Aurora Cannabis stock get a much-needed boost or go up in smoke?

How has the Aurora Cannabis stock been performing?
 

When Aurora Cannabis released its third-quarter earnings, it announced a loss of CA$0.85 per share, which was below the Zacks consensus estimate, creating a negative surprise of 41.18%.

Meanwhile, the company posted net revenue of CA$55.16m for the quarter ended 31 March, which also missed the Zacks consensus estimate by 21.05% and was 26.96% lower than 2020’s third-quarter revenue of CA$73.54m. Despite the weak earnings, Aurora Cannabis’ management remained confident of its strength.

“We’re number one by revenue in Canada's medical market, which, as you know, is the largest federally regulated medical market in the world. And our estimated market share is nearly double that of our next largest competitor,” Aurora’s CEO and director Miguel Martin (pictured) said on the third-quarter earnings call.

“We’re number one by revenue in Canada's medical market, which, as you know, is the largest federally regulated medical market in the world. And our estimated market share is nearly double that of our next largest competitor” - Aurora’s CEO and director Miguel Martin

“Notably, our international medical business also thrived during the period, demonstrating sequential growth even as many of our peers experienced declines. It should be mentioned that both of these units exhibit approximately 60% gross margins.”

The Aurora Cannabis stock price was already on a downward trend leading up to the report but went to close CA$8.29 on 14 May, the day after earnings were released. However, despite weak earnings, Aurora Cannabis’ share price went on to rally and closed at CA$12.38 on 9 June — up 16.7% year-to-date, which may have been influenced by Martin’s upbeat comments.

Does Aurora Cannabis have room to grow?

Looking ahead to the upcoming earnings report, analysts expect Aurora Cannabis to post a loss of CA$0.27 when it announces its quarterly results on 21 September, which would be a remarkable improvement compared to last year’s fourth-quarter loss of CA$16.69 per share.

Meanwhile, revenue for the quarter is expected to have reached CA$59.2m, which would mark a 17.89% loss from last year’s quarterly revenue of CA$72.1m.

Earlier this month, Jeffries analyst Owen Bennet upgraded his rating of Aurora Cannabis from underperform to hold, according to Markets Insider. Bennet reportedly said that recent trading levels of the stock “better reflect reality” of operational weakness and the value of the company’s prospects to expand into the US market from the Canadian market.

“The main bull argument for much of the Canadian names in recent times has been US optionality [and] ACB is no different” - Jeffries analyst Owen Bennet

“The main bull argument for much of the Canadian names in recent times has been US optionality [and] ACB is no different,” Bennett said. Despite this, he did also lower his price target on the stock’s US-listed shares by 9% to $8.56.

Bennett’s outlook is in line with the wider consensus as the median price target among 11 analysts offering price forecasts, polled by Yahoo Finance, stands at CA$8.36, with a high estimate of $12 and a low of $6. The median estimate suggests there could be a 0.4% fall in Aurora’s share price from 16 September.

Meanwhile, among the analysts, Aurora Cannabis has a consensus underperform rating, led by a majority of four, while one rates the stock as buy, two a strong buy and five a sell.