Aurora Cannabis Inc Gets Smoked After Announcing Share Offering

Aurora Cannabis Inc. (ACB) plunged 7.71% Wednesday after the Canadian-based marijuana company announced it plans to sell more shares for growth opportunities, working capital, and other corporate activities. Under the proposed $125 million capital raising, Aurora expects to sell each new share for $7.50 with an attached warrant that allows the buyer to purchase another share for $9 within 40 months of the close date. However, the company said final terms would be finalized at the time of pricing.

Since the Nov. 3 U.S. presidential election, the stock has been on a high in anticipation of a cannabis-friendly Biden administration and reporting quarterly sales that came in well ahead of expectations. While the company’s fiscal Q1 revenue of $52.2 million declined 10% from a year earlier, the figure comfortably topped Street forecasts of $48.9 million. Moreover, Aurora said it expects to reach positive adjusted EBITDA next quarter.

As of Nov. 12, 2020, the stock has a market capitalization of $1.23 billion and trades up a massive 73% over the past week. Despite the recent surge, the shares have tumbled 70.45% year to date (YTD).

Wall Street View

Earlier this week, Cantor Fitzgerald’s Pablo Zuanic lowered his price target on the stock to C$12 from C$13 but reiterated the firm’s Neutral rating. The analyst cited disappointing Canadian recreational and medical cannabis Q1 sales along with a declining market share in the recreational business for the downgrade.

However, Zuanic likes the company’s shift from value to premium pot offerings. “The volatility notwithstanding, we think the relative valuation [versus other pot companies] leaves little downside,” he wrote in a research note to clients cited by Barron’s.

Elsewhere on the Street, other analysts also sit mostly on the fence. The stock receives 14 ‘Hold’ ratings, 1 ‘Overweight’ rating, and 4 ‘Sell’ ratings. Price targets range from a high of $12.34 to a low of $4.99. Wednesday’s $7.66 close offers a 5.7% premium to analysts’ 12-month consensus target of $8.10.

Technical Outlook and Trading Tactics

Since forging a 5-year low beneath $4 in late October, Aurora shares have staged an impressive upside reversal on heavy volume, breaking above both a multi-month downtrend line and the 200-day simple moving average (SMA) – albeit temporarily. In the past few trading sessions, profit takers have moved in as investors digest the company’s Q1 earnings and yesterday’s capital raising announcement.

Active traders should view the current retracement as a “buy the dip” opportunity, given price action has flipped the downtrend line from resistance into support at the $6.70 area. In terms of trade management, consider placing a stop-loss order beneath last month’s low at $3.71 and targeting a move to crucial overhead resistance at $18.