Jefferies analyst Owen Bennett reiterated his underperform rating on Aurora Cannabis Inc. stock (NYS:ACB) (TSE:CA:ACB) on Wednesday, and said second-quarter earnings released last week "only reinforced our concerns on its underlying business." Canadian sales pressure "were more pronounced than we had assumed, with little improvement on the margin profile," Bennett wrote in a note to clients. "Second, given the near-term debt overhang and its high cash burn rate, we raise questions marks on whether Aurora's balance sheet is strong enough to support a potential US push." The analyst raised his stock price target to C$9.44 ($7.51) from C$4.59, to reflect U.S. developments. The cannabis sector has rallied in recent weeks amid high hopes for reforms of U.S.' strict cannabis laws, that continue to classify the plant as a Schedule I drug, alongside heroin. The new administration is deemed more cannabis-friendly than the last one, and already Senate Majority Leader Chuck Schumer has pledged to make cannabis legislation a key part of the current Congress. "While Aurora is not as expensive as certain other Canadian peers, for the others you can make a much better case for US optionality," said Bennett. "For example, Canopy takes ownership in an MSO and Cronos is sitting on C$1bn in cash with little debt, so can buy US assets, or at least invest aggressively. The same can't be said for Aurora." The analyst lowered his full-year gross margin forecast and raised his sales, general & administration cost forecasts. Aurora's U.S.-listed shares were up 4.3% premarket, but have fallen 43% in the last 12 months, while the Cannabis ETF (PSE:THCX) has gained 87% and the S&P 500 (S&P:SPX) has gained 16%.
Feb. 24, 2021, 8:13 a.m. EST