Aurora Cannabis Looking For Key Turnaround Moment

Aurora Cannabis Looking For Key Turnaround Moment  | Sep 15, 2020 12:15

Turnaround moments in markets are amazing occasions that can shift momentum, reconfigure trajectories and recalibrate prospects. They can change a losing game into a victory and recast the path forward in a brighter light.

And that is exactly what Aurora Cannabis (NYSE:ACB) (TSX:ACB) investors will be looking for when one of the world’s largest marijuana growers in North America unveils its latest quarterly earnings later this month—a turnaround moment that will show improvements in key areas.

The Edmonton-based cannabis producer has had a horrendous year. Not only is its stock down 68% since January, but it has posted two consecutive quarters of negative earnings in addition to consistently posting negative operating income.

Aurora Canabis Chart

Will the reversal materialize? With fourth quarter earnings set to be revealed on Sept. 22, the clock is ticking loudly.

The first concrete sign of a turnaround effort to reshape the company’s future came last week, as Aurora announced the appointment of a new chief executive officer.

Miguel Martin was named its new CEO, eliminating a vacancy the company has been struggling to fill for almost six months. Martin takes over the post after a short stint as Aurora’s chief commercial officer, a title he has held since July. Prior to that, Martin was the CEO of Reliva, which Aurora acquired a few months ago. Martin also served as the president of Logic Technology, a large manufacturer of electronic cigarettes, and the senior vice-president of Altria Sales and Distribution, a subsidiary of Altria (NYSE:MO), the U.S.-based tobacco giant.

Taking on the task of reshaping Aurora will be no small feat. Yesterday, the company announced it will take a writedown on impairments totaling between C$1.6 billion (US$1.21 billion) and C$1.8 billion (US$1.368 billion).

Further complicating the company’s turnaround was the statement it released Monday that said is expects to “report certain material weaknesses in the company’s internal control framework.”

Aurora said these weaknesses are a result of the “significant changes to the company during the fiscal year, including the Business Transformation Plan announced in February 2020.”

The company does not expect to change any previously released results.

Another sign it is cleaning up shop, the grower shared plans to cut short its multi-year CBD deal with the U.S. mixed martial arts promoter, UFC, which was expected to cost Aurora US$30 million.

What To Watch For

Aurora needs to demonstrate sales growth. In the previous quarter, revenues jumped to C$56 million (US$42.56), from C$41 million (US$31.16). The increase was, in part, attributed to consumers stocking up during COVID-19 lockdowns. So it is not assured this upward trend will be something the company can maintain.

The other key metric will be EBITDA, which stands for earnings before interest, taxes, depreciation and amortization. Aurora has been promising it would hit positive EBITDA by the first quarter of fiscal 2021. In the third quarter of 2020, it reported an adjusted EBITDA loss of C$45.9 million (US$34.89). So this number needs to move upward.

Industry watchers are mixed on how successful Aurora will be. On Sept. 9, Stifel lowered its price target on Aurora stock to C$10.50 (US$7.98) from C$16 (US$12.16), while on Sept. 8, ATB Capital raised its price target to C$11.30 (US$8.59) from C$10.40 (US$7.91).

Yesterday, Aurora stock gained just about 3% to close at C$9.47 in Toronto and $7.18 in New York.

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