In a one-two punch to investor sentiment on Thursday, analysts at investment bank Piper Sandler cut their rating on Aurora Cannabis stock to underweight, TheFly.com reported. And today, Bank of America followed up with its own downgrade to underperform.
Both analysts predict a $1 price target for Aurora Cannabis stock, and with shares down 11% as of 3:07 p.m. EST on Friday, the stock already seems to be moving in that direction.
Piper Sandler says that a slowdown in Germany, where regulators have halted Aurora's cannabis sales pending evaluation of its sterilization procedures, is putting a strain on the company's finances. Aurora's cash from operations will probably run negative (and free cash flow even more so) "until F3Q21" at best, Piper Sandler said.
To plug the hole in its balance sheet, Piper Sandler notes that Aurora has already sold enough shares to raise 80 million Canadian dollars ($61.3 million), yet will need to raise CA$200 million more. This could prove difficult, however, in this capital environment, Piper Sandler said. Lenders aren't enthusiastic about lending money to unprofitable cannabis producers right now. And that probably leaves additional share issuances (and additional dilution) as the most likely solution.
Bank of America's concerns also center on Aurora's balance sheet risk. Although so far, neither analyst is using the word "bankruptcy," BofA notes that it "struggles to envision a scenario where shares have sustainable support."
Even after losing more than 80% of its stock market value in less than a year, Aurora Cannabis could still go lower.