EU GMP And TGA Expertise Will Expand Global Cannabis Reach

Key Takeaways

• Strategic international expansion and regulatory changes in key markets could significantly boost future revenues and medical cannabis margins.
  
• Strong financial position enables strategic investments, potentially enhancing future earnings and long-term shareholder value.
  
• Aurora Cannabis faces regulatory challenges, increased international competition, cost fluctuations, and reliance on volatile high-margin markets, affecting revenue and profitability.

Catalysts

Engages in the production, distribution, and sale of cannabis and cannabis-derivative products in Canada and internationally.

• Aurora Cannabis is leveraging its EU GMP and TGA GMP manufacturing facilities and expertise to expand internationally, with significant growth in global medical cannabis revenue projected, impacting future revenues positively.
  
• The company is focusing on maintaining high medical cannabis margins through operational excellence and strategic international positioning, which could improve future net margins.
  
• Aurora's capital allocation is directed towards medical cannabis and premium segments, where they anticipate high margin opportunities, potentially enhancing future earnings.
  
• The growth in international markets like Germany, Australia, Poland, and the UK is driven by regulatory changes and expanded patient access, which could significantly boost future revenues.
  
• Aurora's strong financial position with no cannabis business debt and robust free cash flow allows for strategic investments and opportunistic growth, potentially leading to higher future earnings and long-term shareholder value.

Aurora Cannabis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aurora Cannabis's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.5% today to 1.6% in 3 years time.
• Analysts expect earnings to reach CA$7.3 million (and earnings per share of CA$0.48) by about May 2028, down from CA$17.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$28 million in earnings, and the most bearish expecting CA$-1.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 96.2x on those 2028 earnings, up from 19.8x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 20.6x.
• Analysts expect the number of shares outstanding to grow by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.82%, as per the Simply Wall St company report.

Aurora Cannabis Future Earnings Per Share Growth

Risks

• Aurora Cannabis faces risks from regulatory challenges in its international markets, such as complex EU GMP and TGA GMP standards, which could potentially impact revenue and profit margins if compliance costs increase or if regulations change suddenly.
  
• Increased competition in the international medical cannabis market, despite current consolidation, could lead to price pressures and impact margins and profitability as more companies attempt to enter these markets.
  
• Although Aurora reported growth in international markets, the Canadian recreational cannabis segment experienced a revenue decline, highlighting potential volatility and pressure on overall revenue if international market dynamics shift unfavorably.
  
• The potential for cost fluctuations related to energy and other factors in international production facilities, such as the German market, might impact Aurora’s cost structure and margins if these expenses increase and are not offset by revenue growth.
  
• The reliance on high-margin markets, where favorable conditions might not be sustainable long-term due to potential regulatory changes or market saturation, presents a risk to maintaining current adjusted gross profit levels if those markets contract or if competitive pressures intensify.

Valuation

• The analysts have a consensus price target of CA$10.75 for Aurora Cannabis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$13.0, and the most bearish reporting a price target of just CA$8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$455.3 million, earnings will come to CA$7.3 million, and it would be trading on a PE ratio of 96.2x, assuming you use a discount rate of 5.8%.
• Given the current share price of CA$6.41, the analyst price target of CA$10.75 is 40.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.