MKM Partners lowered its quarterly estimates for Canadian cannabis companies Canopy Growth Corp. and Aurora Cannabis Inc. , and said he expects neither company will show much improvement in sales when they report earnings on Thursday. Analyst Bill Kirk cited three reasons for the cuts, namely that inventory being held at provinces is weighing on shipments from manufacturers, pricing is falling and lower prices won't help shift product because legal weed is still way more expensive than black market product. "While net sales estimates have come down for both since the end of August (-18% for Canopy and -25% for Aurora), we believe there is still some risk to revenue estimates and EBITDA estimates (EBITDA estimate only down 8% for Canopy)," Kirk wrote in a note to clients. "With sequential growth suddenly stalling/declining, we believe P&L de-leverage will negatively surprise (costs planned for growth, but no growth)." That will cause the bulls to revisit the industry's expectations about how quickly companies can attain profitability. "For instance, Aurora is unlikely to be EBITDA positive by June 2020 as consensus expects," he wrote. Kirk lowered his sales forecast for Canopy's fiscal second quarter to C$95.4 million ($72.1 million) from a previous C$114.5 million and compared with the consensus of C$101.5 million. For Aurora, he lowered his fiscal first-quarter sales forecast to C$92.2 million from a previous C$98.0 million and consensus of C$89.7 million. Kirk rates Canopy as neutral and Aurora as sell. Canopy's U.S.-listed shares were last down 0.7% premarket, while Aurora was up 0.3%. Read More...
MKM Partners lowered its quarterly estimates for Canadian cannabis companies Canopy Growth Corp. and Aurora Cannabis Inc. , and said he expects neither company will show much improvement in sales when they report earnings on Thursday. Analyst Bill Kirk cited three reasons for the cuts, namely that inventory being held at provinces is weighing on shipments from manufacturers, pricing is falling and lower prices won’t help shift product because legal weed is still way more expensive than black market product. “While net sales estimates have come down for both since the end of August (-18% for Canopy and -25% for Aurora), we believe there is still some risk to revenue estimates and EBITDA estimates (EBITDA estimate only down 8% for Canopy),” Kirk wrote in a note to clients. “With sequential growth suddenly stalling/declining, we believe P&L de-leverage will negatively surprise (costs planned for growth, but no growth).” That will cause the bulls to revisit the industry’s expectations about how quickly companies can attain profitability. “For instance, Aurora is unlikely to be EBITDA positive by June 2020 as consensus expects,” he wrote. Kirk lowered his sales forecast for Canopy’s fiscal second quarter to C$95.4 million ($72.1 million) from a previous C$114.5 million and compared with the consensus of C$101.5 million. For Aurora, he lowered his fiscal first-quarter sales forecast to C$92.2 million from a previous C$98.0 million and consensus of C$89.7 million. Kirk rates Canopy as neutral and Aurora as sell. Canopy’s U.S.-listed shares were last down 0.7% premarket, while Aurora was up 0.3%.
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