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Several analysts cut their price target for Aurora Cannabis Inc., after the company said sales may “plateau” in the coming quarters. Meanwhile, Cowen analyst Vivien Azer launched coverage of five MSOs, including a scathing initiating report on MedMen Enterprises, which she said is “bleeding red.” Mood Global said it will supply Shoppers Drug Mart with a line of accessories to be sold on the pharmacy’s online medical cannabis site.
– Mark Rendell
Analysts cut Aurora price target, lower revenue and EBITDA expectations
Several analysts have cut their price target for Aurora Cannabis Inc., after the company missed its own quarterly revenue target and suggested on an earnings call on Thursday that its sales may “plateau” in the coming quarters.
Bank of Montreal analysts Tamy Chen and Peter Sklar lowered their price target to $9 from $11, while Royal Bank of Canada analyst Douglas Miehm cut his target to $8 from $9. Both Eight Capital analyst Graeme Kreindler and GMP Securities analyst Ryan Macdonell dropped their respective price targets to $12 from $15.
“Notwithstanding the recent sell-off, we believe this valuation level remains elevated given execution uncertainties and our view that the company may require substantial financings over our forecast period,” wrote BMO’s Ms. Chen and Mr. Sklar.
Ms. Chen and Mr. Sklar sharply lowered their revenue expectations for Aurora’s coming quarters, projecting sales of only $81-million next quarter, and $87-million in the following quarter. They don’t expect Aurora’s revenues to break $100-million until the company’s fiscal third quarter.
All four analyst reports said expectations for Aurora’s profitability should been moved back by several quarters.
“We do not expect the company to post positive EBITDA until FQ3/20. While we expect steady improvements in gross margins, we believe that operating expenses will remain elevated as Aurora readies its value-add infrastructure,” wrote RBC’s Mr. Miehm.
Mr. Macdonell of GMP also lowered his expectations, however he suggested that Aurora is better positioned than many of its competitors: “While the higher than expected SG&A level and the cautious outlook for revenue in the coming quarters is concerning, we note that Aurora does have a path to positive EBITDA over the near to medium term. This is differentiated from some of Aurora’s senior LP peers.”
– Mark Rendell
Cowen initiates coverage of MedMen with Underperform rating, says company is ‘Bleeding Red’
Cowen Inc. analyst Vivien Azer initiated coverage of MedMen Enterprises on Friday with an Underperform rating and a price target of US$1.50 — 24.2 per cent below MedMen’s current share price.
“While MMEN has encouragingly righted its real estate portfolio and implemented cost cutting initiatives, we believe they are becoming too dependent on capital markets for fundraising and their ability to turn around their spending remains a “show me” story,” wrote Ms. Azer, who titled the report “Bleeding Red.”
“To date, an over-reliance on retail has come in conjunction with excessive spending, where MMEN’s opex represents 273% of sales (TTM), resulting in EBITDA losses approaching $160 mm, considerably below peers. These losses, coupled with high levels of capex, have resulted in a free cash flow loss of ~$315 mm (TTM) bringing MMEN’s rate of cash burn largely into focus,” she wrote.
Ms. Azer also launched coverage of several other multi-state operators on Friday, including:
- Curaleaf: Outperform rating and a US$10.50 price target
- Acreage Holdings: Market Perform rating and a US$9 price target
- Cresco Labs: Outperform rating and a US$14 price target
- Green Thumb Industries: Outperform rating and a US$18.50 price target
“We favor a CPG-type business model that emphasizes finished goods, which carry superior margins relative to retail; depth over breadth optimizes that margin realization,” Ms. Azer wrote.
- Mark Rendell
Mood to supply Shoppers with cannabis accessories
Mood Global Group Inc., a Toronto-based cannabis company, said it will supply Shoppers Drug Mart with a line of accessories to be sold on the pharmacy’s online medical cannabis site.
Mood said on Thursday it entered a supply agreement with Shoppers for a line of premium MOOD accessories. The company also aims launch a white label line of cannabis products in Canada and is actively looking to partner with licensed producers. Mood, whose products include grinders, decarboxilators and, eventually, vapes, did not specifiy which offerings would be available for sale at Shoppers.
Shoppers sells 11 brands of medical cannabis online to patients with a valid medical document in Ontario and Alberta, with plans to expand sales to other provinces.
- Marcy Nicholson