Cowen High on Aurora Cannabis Stock
If you’re following along at home, you know that I’m a big believer in Aurora Cannabis Inc. (NYSE: ACB).
And I’m not alone. On Tuesday, Cowen analyst Vivien Azer named Aurora its Top Pick in the cannabis sector.
Azer initiated ACB stock with an outperform rating and a C$14 ($10.50) price target. That’s a 33 percent upside from Aurora stock’s close on Wednesday.
What’s more, Cowen’s analysis covered many of the benefits I’ve highlighted before, including the company’s ability to produce 575,000 kg of product and its larger and well-established cultivation footprint.
These factors provide “ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market,” Azer wrote in a note.
Furthermore, Cowen said it expects the Canadian cannabis market to rise in valuation to C$12 billion by 2025. With its strong production facilities, Aurora stands to take a large chunk of this multi-billion-dollar market.
But the real icing on Aurora’s cake is its international exposure. The company sells its wares in 23 international markets, including via an online shopping site backed by leading online commerce specialist Shopify.
The international market is a hotbed for medical cannabis sales, and Aurora is primed to capture a considerable market share globally. What’s more, Cowen recently lifted its projection for growth in the international medical cannabis market to $32 billion by 2024, up from prior estimates for $9 billion.
Looking at ACB’s price action, the stock has been among the hottest in the cannabis market. The shares are up more than 59 percent in 2019 and are looking to extend those gains.
Following Cowen’s report, ACB stock surged more than 12 percent on huge volume. In fact, the nearly 73 million shares traded marked the highest single-day volume for Aurora since its initial public offering.
That surge has since been met with a round of profit taking. ACB stock rallied into short-term resistance near $8.50 following the Cowen report, and the shares are now looking to establish price support above $7.50.
There are two encouraging technical factors that should help ACB break out above $8.50 in the near term.
First, the stock is far from overbought, with its 14-day Relative Strength Index (RSI) coming in well below 70.
Second, ACB’s 50-day and 200-day moving averages are headed for a golden cross. This technical formation is the exact opposite of a death cross, about which I have spoken before.
A golden cross is often seen by technical traders as a “buy” signal. Additional buying at this level could easily send ACB north of $8.50, thus attracting even more buyers to the table.
Finally, a breakout above $8.50 could spook ACB short sellers. As of the most recent reporting period, some 72 million ACB shares were sold short, representing 7.76 percent of the stock’s total float (or shares available for public trading).
Spooked short sellers could create a sharp rally for ACB stock in the form of a short-squeeze as they rush to buy back their losing positions.
Regular readers know that I’m long on ACB stock, and plan on holding the shares for some time. However, given the indicators above, Aurora stock could be in for a rapid rally within in the next month or two.
Full disclosure: As of this writing, Thomas Lancaster held U.S. listed shares in Aurora Cannabis Inc.