Barron's | Financial and Canada
Barron's is a leading source of financial news, providing in-depth analysis and commentary on stocks, investments and how markets are moving across the world.
Aurora Cannibas Is Now a Penny Stock. Why One Analyst Thinks It’s Still a Buy. - Barron's
Aurora Cannabis stock sank Monday after the Canadian marijuana firm announced plans for a reverse stock split and a renewed at-the-market stock sale.The companys board approved a consolidation of shares on a 12-to-1 basis, effective on May 11. Currently there are just over 1.31 billion common shares outstanding, which would be reduced to about 109.4 million shares. This reverse split comes as Aurora shares (ticker: ACB) fell out of compliance with New York Stock Exchange listing standards because its share price fell below an average of $1 for a 30-trading-day period.Aurora stock has shed about 90% of its value in the past 12 months. Balance sheet concerns, a slower-than-expected path to positive cash flow, and industry-wide headwinds have dragged on Auroras shares. Shares sank 13% to 76 cents on Monday, while the S&P 500 index was down 1%. The company has announced drastic costs cuts like layoffs and greenhouse sales. Founder Terry Booth stepped down in February. The company at the time told investors it had promised creditors it would turn cash-flow positive by the September 2020 quarter, with 50 million Canadian dollars (US$37.7 million) in earnings before interest, taxes, depreciation, and amortization in fiscal year 2021. On Monday, the company said it had about 205 million Canadian dollars ($147.69 million) in cash, as of March 31. Aurora intends to file a new prospectus supplement for a renewed at-the-market stock sale program, under which about $350 million remains available. Aurora said it will use a portion of its newfound capacity to strengthen its balance sheet amid macroeconomic uncertainty spurred by Covid-19. Social distancing efforts closed cannabis stores in Canadas most populous province, Ontario, a location where Aurora had looked to new store roll outs for a boost in sales. The company said it is still on track for material selling, general, and administrative cost reductions, significant reductions in capital expenditures, and reduction in the complexity across its organization. It still expects cannabis net revenue to show modest quarter-over-quarter growth in the third quarter of fiscal 2020. Our focus today continues to be on financial discipline across the entire organization, interim CEO Michael Singer said in the news release. We are taking appropriate actions to strengthen our cash position and maintain financial flexibility as we navigate through the current environment. As Aurora drives towards generating positive free cash-flow, we are confident that our shareholders will be supportive of our further actions to solidify our balance sheet and position the Company for success. Cantor Fitzgerald analyst Pablo Zuanic is modeling Aurora to only use a quarter of the new facility over the June and September quarters, which he estimates would equate to dilution of about 5% to 6% for existing shares, depending on the average prices. He expects Aurora to transition into a free-cash-flow positive company at some point the 2021 fiscal year. We realize these are big assumptions, he wrote, referring to money to be raised and share price moves. Still, confidence could return if the company can show significant improvement in cash burn and EBITDA over the next couple of quarters. He maintained an Overweight rating, though qualified that it should be viewed like a speculative buy rating, given the uncertainty around the company. He lowered his price target to C$2.75 from C$3.80. Write to Connor Smith at [email protected]