Bank Of America Remains A Hexo Bull After Q3 Print

Consumer packaged goods cannabis company Hexo Corp 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.

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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