Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) has been our top pick in the volatile cannabis space, a view reinforced by the company’s fiscal third-quarter earnings, said analysts at Melius Research.
Aurora released much-anticipated fiscal third-quarter earnings results last Tuesday, with net revenue of C$65.2 million (US$48.44 million) in the quarter, up from C$16.1 million in the year-ago period but lower than analyst estimates of C$67.5 million.
READ: Aurora Cannabis third-quarter earnings miss analyst expectations
“As an early leader, Aurora has the capacity and ability to deliver in an undersupplied market, getting a lead on market share. It has the market cap to either raise cash for investment, or acquire attractive potential assets,” wrote Melius Research analyst Rob Wertheimer last week.
“It has the global reach to expand into other markets. All those early leads, with luck, will provide cash flow with which to expand and build brands over time. Canada by itself isn’t a very large market, but if it develops into a consolidated one, as beer has, then it can also be a quality profit pool,” he added.
Nearly doubles production
The analyst noted that on the production front, Aurora reported it nearly doubled production to 15,590 kg, with the majority of the volume harvested in the last part of the quarter.
The company reported that it sold 9,160 kilos in the fiscal third quarter, a significant bump from 6,999 kg sold in the fiscal second quarter. The firm reported it sold C$29.1 million of medical cannabis and C$29.6 million of recreational cannabis in the quarter.
“The basics of operations are critical, and not easy, when so much speed in ramping is needed. Aurora seems to be on a good path to ramping production, with no lost harvests or major product quality issues,” wrote Wertheimer.
Shares in Auroa were slightly lower at $8.62 before the opening bell.
Immense strategic potential
The analyst noted that Aurora has done well, with an aggressive international plan, and a solid focus on Canadian operations and on the profitable and stable medical side of the customer base.
“It has kept its options open on more fundamental alliances, allowing its own value to build rather than selling a large stake to a strategic partner too soon. So far, that doesn’t seem to have hurt its expansion potential,” wrote Wertheimer.
“Rival Canopy Canopy Growth Corp (NYSE: CGC) has perhaps been more active on the strategic front, but hasn’t yet demonstrated either the production expertise or the same level of success in early brand building,” he added.
Melius Research has a C$16 target on Aurora, providing substantial upside if the market and execution continue to develop well.
“Aurora continues to widen its emerging lead, however, and we maintain our Overweight rating with a little more comfort post results,” wrote Wertheimer.
Contact Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive