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Aurora Cannabis (ACB) Stock Gets Its Mojo Back; What’s Next?

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After some scandals and weak earnings reports rocked the cannabis industry over the last couple of months, most of the companies competing in the sector experienced downward pressure on their share prices, as the industry floundered to find some positive news that reinforced the long-term viability of the cannabis sector.

Aurora Cannabis (ACB) delivered that good news via its preliminary Q4 guidance that showed the positive narrative of the company specifically, and the industry in general, remains in place, even though some players aren't going to perform, and in some cases, even survive over the long haul.

Guidance

While Aurora management was clear that the numbers it was providing are unaudited, it also said it expects them to be close to what is is guiding for in its fourth fiscal quarter ended June 30.

Concerning revenue, it is looking for it to be in a range of C$100 million ($75.8 million) to C$107 million. That is significantly up from the C$19.1 million year-over-year, although I wouldn't get too excited about that because it was pre-legalization numbers in Canada.

Comparisons for the prior year will be more relevant in the first calendar quarter of 2020, and most accurate in the second quarter. The reason is the last calendar quarter of 2018 wasn't a full one because of legalization coming in the second half of October, and of course it taking time to effectively roll out.

But that doesn't take away from the revenue growth of Aurora, which did very well sequentially too. Revenue in the prior quarter was C$65.1 million, and net revenues for the reporting period are guided for C$90 million to C$95 million. That is an impressive performance, and the company shouldn't slow down anytime soon, as it's just starting to approach the enormous production capacity of over 625,000 kilograms annually in a couple of quarters.

With the company guiding for growth to continue across all its business segments, the future does look very bright for Aurora.

As for full-year guidance, net revenue is projected to reach a range of C$249 million to C$256 million.

Product available for sale in Q4 2019 will be on the upper end of the range of 25,000 kilograms and 30,000 kilograms, according to the company. Previous guidance had in coming in at about 25,000 kilograms for the quarter.

Also significant was the reiteration of its past assertion that the company should generate positive adjusted EBITDA in the reporting period. It also sees improvements in important metrics like cash cost per gram, gross margins and the amount of kilograms sold.

Overall importance

There are a couple of important things to note in this guidance. The first is, it counters some of the bearish comments analysts, pundits and financial writers made concerning Aurora Cannabis after its last earnings report, which was good, but not great because of some mixed results.

They also wrongly lumped Aurora Cannabis in with the rest of the sector, as if it's not a company that has significantly differentiated itself from its peers.

Aurora has confirmed it is on a solid path to profitability even as it boosts production capacity and availability of product to sell. Some of the insinuations that its going to have to write off some of its past acquisitions because they paid too much for them is proving to be bogus or wrongly assumed. This is going to be more apparent over the next year as its revenue soars and costs shrink.

Just as important is Aurora, after the fall of Canopy Growth from the firing of co-CEO Bruce Linton and its dismal earnings report, is moving into the top position as the face of the industry. That's why when this guidance was issued, overall, it brought the entire sector along for the ride. There were a few exceptions that remained under pressure for obvious reasons, but as a whole, Aurora has brought new life to the cannabis industry at a time it needed it.

Conclusion

I see nothing to suggest Aurora Cannabis is going to have some negative surprises in the next quarter, or the next year. Sales are going to continue to increase, and margins and earnings will continue to improve as Canada approves of derivative products that enjoy wider margins and better earnings potential.

Aurora is best positioned to take advantage of that over time because of its market-leading production capacity, and its proven ability to execute its business model.

The cannabis industry has found its new face and leader, and I see it consistently being a solid standard-bearer that should lead the sector to more positive sentiment and outlook going forward, as well as performing strongly itself.

Aurora Cannabis remains my favorite pick in the cannabis industry.

Overall, the initial word hovering around this cannabis giant points to the bulls, as TipRanks analytics exhibit ACB as a Buy. Out of 10 analysts polled in the last 3 months, 6 are bullish on Aurora stock while 4 remain sidelined. The average price target among these analysts stands at $11.84, which is nearly 77% higher than the stock's current value. (See ACB's price targets and analyst ratings on TipRanks)