Aurora stock is continuing to fall this week after Cowen analysts downgraded Aurora Cannabis (TSX:ACB) (NYSE:ACB), while Cantor Fitzgerald is sticking with its overweight rating.
Cannabis 2.0 Unlikely to Be a Catalyst
Feeling more bearish on the prospects of Aurora stock, a Cowen team of analysts led by Vivien Azer said the issues that have plagued the cannabis market since legalization—a shortage of retail stores, pricing pressures created by a still-thriving black market and oversupply—haven't yet been dealt with adequately enough. Azer also said that the launch of cannabis 2.0 products is unlikely to have a catalytic effect on the market to the extent that many had previously envisioned.
Cowen cut its outlook on Aurora stock from 'outperform' to 'market perform,' raising concerns about the embattled firm's cash position. The company currently has about C$200 million available on an at-the-market offering and another C$25 million in borrowing capacity, but that would only get Aurora Cannabis to near break-even levels by the end of fiscal 2021. To make matters worse, Aurora must generate positive EBITDA by Q1 2021 as part of its debt covenants; however, Cowen is projecting a loss of about C$17 million.
Some Positives for Aurora Stock
Analysts at Cantor Fitzgerald are slightly more upbeat on Aurora stock, reiterating its overweight rating in a note to investors on Monday. Analyst Pablo Zuanic said recent moves taken by the company to shore up its balance sheet and protect margins were positives, and the stock’s underperformance versus peers is overdone. Zuanic pointed to two key metrics as a source for optimism; Aurora is second only to Canopy in recreational sales over the last five quarters, and it is one of just five companies that have been able to maintain new recreational prices above $5.20 a gram.
However, with Aurora stock down a massive 85% in the last year, the company's precarious cash position has pushed it right to the brink, and it's difficult to see too many upsides at the minutes. With equity markets, in general, taking a hammering as the coronavirus wreaks havoc on the global economy, it looks as though there may be a long road back for Aurora Cannabis.
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