Consumer packaged goods cannabis company Hexo Corp (NYSE: HEXO) reported Wednesday evening fiscal third-quarter results, which one analyst described as "OK" as the company continues to build out towards an inflection point.
The Analyst
Bank of America's Christopher Carey maintains a Buy rating on Hexo with an unchanged $10 price target.
The Thesis
Hexo's quarter was mostly in line with expectations, which Carey said were consistent with a prior view an inflection won't be seen in the quarter. Pricing declined by 9 percent quarter-over-quarter per gram and by 11 percent on a net basis. Cultivation rose 98 percent from last quarter to 9,804kg of cannabis.
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Looking forward to the fiscal fourth quarter, Hexo expects adult-use revenues to double. The company reaffirmed its prior fiscal 2020 revenue guidance of C$400 million in sales, which includes the acquisition of Newstrike. This compares favorably to the Street's consensus estimate of C$330 million and BofA's estimate of C$318 million.
Carey said the company's outlook implies an inflection in the business is now set to begin as new facilities come online and Hexo progresses in integrating Newstrike.
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Hexo is among the "most de-risked" cannabis supplier in Canada with a preferred supplier status in the province of Quebec. This makes Hexo "the most attractively valued" stock within Bank of America's coverage.
Price Action
Shares of Hexo traded lower by 3.8% at $6.20 Thursday morning.
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Latest Ratings for HEXO
| Date | Firm | Action | From | To |
|---|---|---|---|---|
| Apr 2019 | Initiates Coverage On | Buy | ||
| Apr 2019 | Initiates Coverage On | Buy | ||
| Feb 2019 | Initiates Coverage On | Underperform |
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