Aurora Stock Sinks as Analysts Warn of Risks to Balance Sheet

Aurora stock

Aurora stock is continuing its abysmal start to 2020 after analysts warned that Aurora Cannabis (TSX:ACB) (NYSE:ACB) is unlikely to meet its debt covenants on a C$360 million loan due August 2021.

Analysts Slash Coverage on Aurora Stock

Aurora Cannabis has become the subject of increasing concern in recent weeks as the underwhelming launch of the legal cannabis market continues to wreak havoc on cannabis companies across the board. Last week, three of Aurora's most prominent analysts warned investors that the market's second-biggest firm is unlikely to meet the covenants on debt due next year, leading them to downgrade their rating on Aurora stock.

“With balance sheet risks to remain a core investment thesis in 2020 in our view, and lingering uncertainty especially on financial covenants, we struggle to envision a scenario where shares have sustainable support,” said Bank of America analyst Christopher Carey, downgrading Aurora stock from neutral to underperform and slashing his 12-month price target from C$4.00 to C$1.50. Michael Lavery of Piper Sandler also downgraded Aurora from neutral to underweight and cut his price target from US$3.00 to US$1.00.

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Lavery cited a debt covenant that requires Aurora Cannabis to keep its debt to EBITDA ratio below 4:1 after September 30, 2020, saying he doesn't expect the company to reach this ratio until the second half of 2022. “We project a $200 million cash deficit in the interim, which may prove difficult to finance in this capital environment,” Lavery said. Aurora stock is down about 14% since analysts slashed their coverage on the cannabis producer.

Concern Over Aurora's Financial Position

Aurora's dire financial situation became the focus of attention last month after the departure of its Chief Financial Officer Cam Battley. In this position, Battley oversaw a 24% decline in revenue in the most recent quarter, leading Aurora Cannabis to halt construction on two of its facilities, located in Denmark and Alberta, in order to save over C$190 million in cash as part of a capital restructuring program.

Aurora stock is currently trading at an all-time low of $2.08.

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