MKM Partners analyst Bill Kirk cut his stock price target on Aurora Cannabis Inc. on Monday to C$3.50 ($2.65) from C$5.00, and said there is still some optimism in the stock “to shake and trim.”
Kirk cited three reasons for the move, namely a softening of pricing, a widening gap between legal and black market prices and fewer-than-expected new store openings in Ontario and Quebec. “Aurora warned on its September 12th earnings call that July and August had slowed, and including HEXOCorp’s HEXO, +8.47% HEXO, +0.60% commentary and pace of new stores, we have no evidence that September and early October were any better,” the analyst wrote in a note to clients.
Kirk, who rates Aurora a sell, was referring to a revenue warning from Hexo last week that shook the market. He said consensus expectations for a sequential rise in revenue are overdone. Kirk lowered his first-quarter fiscal 2020 sales estimate to C$98 million from a previous C$117 million, below the C$105 million consensus.
“We believe profitability for cultivators will generally get worse before getting better,” said the note. “Pricing is already decreasing and supply availability will continue to grow/improve.” Aurora shares were up 1.9% in premarket trade, but have fallen 26% in 2019, while the ETFMG Alternative Harvest ETF has fallen 25% and the S&P 500 SPX, +1.00% has gained 18%.