Shares of Aurora Cannabis fell on Tuesday after an analyst at CIBC lowered his rating on the stock ahead of the company’s earnings report on Thursday.
CIBC analyst John Zamparo cut his rating on Aurora stock (ticker: ACB) to Underperformer—meaning he expects the stock to lag behind its Canadian cannabis peers over the next 12-18 months—from Neutral in a note after the market closed on Monday. He also lowered his price target to 9 Canadian dollars (US$7.44) from C$15. Aurora’s Toronto-listed shares closed down 2.8% to C$9.87 on Tuesday.
Zamparo notes that Aurora has yet to find a major consumer packaged-goods investor or strategic partner, and the company has the most net debt among the cannabis stocks he covers. Meanwhile, he thinks the company is moving further away from profitability as it reevaluates its cannabis mix.
“We believe Aurora will garner a lower valuation until it can demonstrate profitability, improve its balance sheet further, or align with a strategic partner, as most of its peers have,” he wrote.
While the company does have a leading Canadian medical cannabis business and a growing international segment, its high net debt and history of dilution from selling stock through at-the-market offerings are clear negatives, according to Zamparo.
Aurora is set to report fiscal third-quarter results on Thursday. Zamparo expects revenue of C$64 million. He also anticipates yet another loss on adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, basis, this time at C$17 million. Hitting positive adjusted Ebitda has been a mark the company has missed repeatedly. Analysts don’t expect that to change any time soon.