Aurora Cannabis Surges 14% as Activist Investor Nelson Peltz Joins as Strategic Advisor

Aurora Cannabis‘ stock surged nearly 14% Wednesday after the company said that Nelson Peltz, a billionaire activist investor and a founding partner …

Aurora Cannabis’ stock surged nearly 14% Wednesday after the company said that Nelson Peltz, a billionaire activist investor and a founding partner of hedge-fund Trian Fund Management, would become a strategic investor and advisor at the company.

Aurora said it granted Peltz options to purchase 19.96 million common Aurora shares at a price of 10.34 Canadian dollars a share, or US$7.74 a share. Peltz would become the cannabis company’s second-largest shareholder if he exercises all the options. Vanguard Group held 20.3 million shares of Aurora at the end of 2018, according to Yahoo Finance.

Peltz’s investments are sometimes seen as adversarial by companies, as Trian’s approach is to push for changes that will increase their market value. Aurora’s tone seemed welcoming of Peltz’s involvement, saying it will “work collaboratively and strategically to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Aurora’s contemplated market segments.”

Stock Market Today: Aurora Cannabis Moves Higher With a New Advisor

Aurora Cannabis shares climbed 13.9% after the marijuana producer appointed Nelson Peltz — a noted billionaire activist investor, and the founding …

Major stock market indexes rose on Wednesday in the wake of new government data that showed durable goods orders climbed a better-than-expected 0.4% in January. The S&P 500 (SNPINDEX:^GSPC) and the Dow Jones Industrial Average (DJINDICES:^DJI) both posted modest gains.

Today’s stock market

Index Percentage Change Point Change
Dow 0.58% 148.23
S&P 500 0.69% 19.40

Data source: Yahoo! Finance

Stock market charts indicating gains and overlapping a digital world map

Image source: Getty Images.

Tech stocks also surged, leaving the Technology Select Sector SPDR Fund(NYSEMKT:XLK) up 0.7%. Industrial names rebounded after a particularly difficult session on Tuesday, with the Industrial Select Sector SPDR Fund(NYSEMKT:XLI) jumping 0.9%.

As for individual stocks, Aurora Cannabis(NYSE:ACB) popped after bringing on a promising new strategic advisor, while Vera Bradley(NASDAQ:VRA) soared on a strong quarterly report.

Aurora Cannabis hires Nelson Peltz

Aurora Cannabis shares climbed 13.9% after the marijuana producer appointed Nelson Peltz — a noted billionaire activist investor, and the founding partner and CEO of investment firm Trian Fund Management — as a strategic advisor.

Aurora says it will work with Peltz on both its global expansion strategy and “to explore potential partnerships that would be the optimal strategic fit for successful entry into each of Aurora’s contemplated market segments.”

“I believe Aurora has a solid execution track record, is strongly differentiated from its peers, has achieved integration throughout the value chain and is poised to go to the next level across a range of industry verticals,” Peltz added. “I also believe that Canadian licensed producers, and Aurora in particular, are well positioned to lead in the development of the international cannabis industry as regulations evolve, with a strong, globally replicable operating model.”

Aurora also granted Peltz options to buy nearly 20 million common Aurora shares at a price of 10.34 Canadian dollars per share.

Vera Bradley’s stylish quarter

Vera Bradley stock skyrocketed 21.8% after the luxury handbag and accessories leader announced better-than-expected fiscal fourth-quarter 2019 results and solid guidance.

Vera Bradley’s quarterly revenue declined 10.5% year over year, to $118.2 million, near the high end of guidance for a range of $114 million to $119 million. Net income climbed slightly to $8.6 million, or $0.25 per share, also at the top end of guidance for per-share earnings of $0.22 to $0.25.

CEO Robert Wallstrom said he was “pleased” with the company’s performance, particularly given the combination of strong revenue, higher-than-expected gross margin, and solid expense management.

Looking ahead to fiscal 2020, Vera Bradley expects revenue in the range of $420 million to $440 million, good for year-over-year growth of 0.9% to 5.7%. That should translate into earnings per share of $0.64 to $0.74, up from $0.59 per share in fiscal 2019. Both the top and bottom lines of this outlook were above analysts’ consensus estimates calling for fiscal 2020 revenue of $405.4 million and earnings of $0.60 per share.

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Aurora Cannabis stock soars over 10% on Nelson Peltz appointment

Aurora Cannabis stock soars over 10% after the company announced the appointment of U.S. billionaire Nelson Peltz as strategic adviser. Peltz is the …

Aurora Cannabis stock soars over 10% after the company announced the appointment of U.S. billionaire Nelson Peltz as strategic adviser. Peltz is the founding partner of alternative investment firm Trian Fund Management, bringing his knowledge of the consumer goods industry. Yahoo Finance’s Heidi Chung joins Akiko Fujita.

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GMP Securities turns bullish on Aurora Cannabis

Citing a number of factors, GMP Securities analyst Martin Landry has upgraded Aurora Cannabis (Aurora Cannabis Stock Quote, Chart TSX:ACB).

Citing a number of factors, GMP Securities analyst Martin Landry has upgraded Aurora Cannabis (Aurora Cannabis Stock Quote, Chart TSX:ACB).

In a research update to clients today, Landry upgraded ACB from “Hold” to “Buy” and raised his one-year price target on the stock from $9.50 to $15.00, implying a return of 41 per cent at the time of publication.

The analyst says there are four specific reasons for today’s action, including what he sees as the increasing likelihood of strategic partnerships.

“Aurora announced the appointment of Nelson Peltz as strategic advisor to pursue potential partnerships for the company. Nelson Peltz is the CEO and Founding Partner of Trian Fund Management, L.P., a multi-billion dollar investment management firm with a history of activist campaigns. Trian has been involved with a number of CPG companies such as PepsiCo, Dr Pepper Snapple, Procter & Gamble, Kraft Foods, Heinz, Mondelez, among others. We believe he could be instrumental in facilitating discussions with large CPG companies.”

Second, the analyst says ACB’s fully licensed facilities should alleviate concerns about inventory.

The analyst also thinks there is now visibility on Aurora’s profitability. He believes the company has the potential to generate a billion in revenue with more than $250-million in EBITDA.

Lastly, Landry notes that ACB’s international expansion is in full gear.

“Aurora announced recently that it has started to ship cannabis oils to pharmacies in Germany. With two facilities EU Good Manufacturing Practice certified (Mountain and Markham) and a combined production capacity of 12 tonnes, ACB is well positioned to continue to benefit from high international selling prices. Recently, Aurora also expanded into Portugal with the acquisition of 51% in Gaia Pharm Lda, a license applicant in Portugal.”

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Landry thinks ACB will generate EBITDA of negative $99.2-million on revenue of $324.5-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $99.1-million on a topline of $654.6-million the following year.

“Our target is based on a DCF assuming: (1) a 7.5% discount rate, (2) average market share of the domestic recreational market of 23%, and (3) EBITDA margins of 36% (31% previously),” the analyst adds.

Below: Site Visit: Aurora Cannabis Inc (TSE:ACB) Launches Best-in-Class Aurora Sky Facility

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Peltz Is the Perfect Problem Solver for Aurora Cannabis

Analysts across Wall Street are lauding the advisory partnership Aurora Cannabis (ACB) has struck with activist-investing legend Nelson PeltzThe …

Analysts across Wall Street are lauding the advisory partnership Aurora Cannabis (ACB) has struck with activist-investing legend Nelson Peltz.

The Canadian cannabis stock lit up in Wednesday’s trading, riding the smoking hot stock action to become the world’s second most valuable cannabis company behind Canopy Growth Corp. (CGC) , after the advisory announcement.

While the thoughts of many investors quickly turned to consumer packaged goods, the management prowess of Peltz’s Trian Fund is also a promising value-add to the deal.

“An important focus of Peltz’s historically has been on efficient asset allocation. We believe this strategic insight will be extremely beneficial to Aurora over the coming years,” GMP Securities analyst Martin Landry said. “Some investor pushback on Aurora’s investment case is they have spent large amounts on numerous assets across the value chain, with perhaps little thought to which are best suited. Peltz should support in ensuring assets are kept that yield most value.”

Seizing on Existing Strengths

Some of the promise that investors will look to seize upon is clearly some of the same that Peltz examined before agreeing to advise.

“ACB is well positioned to benefit in the early innings of the Canadian adult use market, given its impressive 20% market share to date and #2 position by in-stock (stock keeping units), based on our analysis,” Cowen analyst Vivien Azer wrote last week, bestowing top-pick status on the pot stock.

“The company’s large cultivation footprint, capable of producing over 575,000 kg, provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market,” she added.

Further, the company has expanded its sales footprint internationally, most recently extending sales to Germany and Portugal.

The key will be Peltz’s perspective on expanding profitability and sustainably.

Further, Peltz should be able to manage the company’s aggressive acquisition strategy and curb investor pushback over a seemingly scattershot strategy to increase supply.

Patience Pays Off

One of the criticisms that has hit the Canadian cannabis company over the past year is its inability to garner a large investment from an alcohol, tobacco, or consumer packaged goods (CPG) company, leaving it billions of dollars behind peers like Canopy Growth and Cronos Group (CRON) .

While Peltz does not guarantee a similar multi-billion partnership, the addition should pacify that persistent critique.

“ACB has thus far remained independent and is bringing on an advisor to help plan out its next phase of growth,” Azer commented on Wednesday. “Peltz brings a network of relationships with large potential strategic companies that ACB could partner with across medical and consumer applications. In addition, we think ACB will be more patient in partnership selection than its peers, particularly regarding equity investment.”

In her view, the patience should allow Aurora to find the best possible partner in an industry where consolidation is likely inevitable.

With the opportunity available and a capable advisor behind the wheel now, some patience may be advisable for investors as well, even if the stock’s run cools down in coming days.

For more on just how patient to be, Stephen “Sarge” Guilfoyle outlined his price target for the stock that he holds alongside Tematica Research CIO Chris Versace for the Stocks Under $10 portfolio.

Aurora Cannabis is a holding in TheStreet’s Stocks Under $10 portfolio. Click here to learn more about this portfolio, trading ideas and market commentary product.

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