Aurora Cannabis (ACB) - Get Report was affirmed outperform at Cowen, where analyst Vivien Azer said she expected the company to more carefully control production costs, selling, general and administrative expenses and capital spending while it restructures existing debt covenants.
Azer has a price target of C$6, or US$4.60 on Aurora. At last check, shares of the Canadian company traded on the New York Stock Exchange were 3% higher at US$2.11. It has traded as high as $2.32, up 13%, on Thursday.
"[Investor] focus has been on the company's liquidity," Azer said.
After she met with management, Azer said management is "working with its creditors to restructure" its debt covenants. And at the end of the first quarter ended Sept. 30, the company had some $200 million of cash, including restricted cash, on hand.
Its weaker-than-expected first-quarter revenue stemmed from congested inventory. The congestion reflected, among other things, initial inventory buildup for planned new locations in Ontario.
"We are encouraged that inventory levels are in focus, as that should facilitate better working capital (cash) management," Azer wrote.
She said the company's "sell-through for gummies and chocolates has exceeded expectations."
Vapor demand has been as expected in the face of bans on vape sales in Alberta and Quebec and a 20% tax in British Columbia, the analyst wrote.
Revenue growth internationally has been below expectations. Aurora "is positive on the longer-term opportunity" although "management took a more cautious view for near-term expansion," Azer said.
Overall, she said, the company "is well-positioned to benefit from the legal recreational cannabis market in Canada and global medical cannabis market."
The risks are that revenue and profit come in below expectations, due to stricter regulations on cannabis and the prospect that consumer demand will lag expectations and supply-chain execution will hit snags, Azer said.
The stock has bounced off a 52-week low of $1.50 set on Jan. 13. The stock traded as high as $10.32 last March.