Hexo's Q1 Report Could Be Ugly, Says Cantor Fitzgerald

It’s been a brutal year for cannabis stocks, and Hexo Corp HEXO is no exception.

With Hexo set to report first-quarter earningsMonday, one Wall Street analyst said investors should brace for more bad news.

The Analyst

Cantor Fitzgerald analyst Pablo Zuanic reiterated an Underperform rating on Hexo with a CA$2.40 ($1.82) price target.

Zuanic: Hexo Could Drag Down Cannabis Stocks 

Hexo is facing a number of headwinds, Zuanic said in a Friday note, and he cut his fiscal 2020 revenue and earnings estimates for the stock. (See the analyst's track record here.) 

Cantor Fitzgerald is now expecting fiscal 2020 revenue of CA$58.6 million, down from CA$60 million.

Ontario's removal of a cap on private store licenses and elimination of its lottery system is bad news for Hexo in coming quarters, the analyst said.

Ontario will reportedly begin accepting bids for new applications starting Jan. 6.

For the October quarter, consensus analyst forecasts are calling for Hexo to report CA$16 million in revenue.

Zuanic is projecting C$14 million in revenue, below the low end of the company’s guidance range.

A significant revenue miss and lackluster guidance from Hexo could spell bad news for the entire cannabis group Monday, he said. 

“While we continue to think catalysts align well for the group in the year ahead, we think when HEXO reports its Oct. qtr on Monday (12/16), the group may be down, given the high correlation within the sector.” 

In addition, Zuanic said Hexo will likely be slower than many of its peers in rolling out Cannabis 2.0 products.

Benzinga’s Take

After huge runs throughout most of 2018, cannabis stocks have come crashing back down to earth in 2019 as reality set in for investors that most Canadian producers are still in the extremely early stages of building up their businesses.

Given the growing pains and uncertainty still remaining in the industry at this point, long-term cannabis bulls need to be prepared for even more volatility in 2020.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo courtesy of Hexo.