Is The Worst Over For HEXO Stock? This Analyst Explains What To Expect From Q4 Earnings

After management shake-ups, including the departure of the company's co-founder and CEO Sebastien St-Louis who was replaced by Scott Cooper last week, and completion of the company's strategic reorganization, HEXO Corp. HEXO HEXO will report its fourth quarter and fiscal year 2021 results on Friday.

The quarter will include two months of the $235 million Zenabis stock deal closed in June, though not the Redecan or 48North Cannabis Corp. deals, closed in August and September respectively on heels of Hexo's debut on the Nasdaq.

The Analyst

Cantor Fitzgerald's analyst Pablo Zuanic lowered the price on HEXO shares to CA$2.29 ($1.85) from CA$3.45, maintaining a neutral rating after projecting that the company will miss sales estimates for the quarter by 15%.

"We project HEXO sales of CA$28.7Mn for the July qtr, about 15% below FactSet consensus," of CA$33.7 million, Zuanic said Thursday.

And, it seems that stock will continue to drop further, added Zuanic who expects HEXO will post a negative adjusted EBITDA of CA$4.3 million, compared with a consensus of a negative adjusted EBITDA of CA$5.1 million.

"We estimate it ended July with $53Mn in net cash," the analyst said.

A Stock Plunge

Paired with the company's buying spree over the past months, the mid-August overnight marketed public offering of its 47.46 million units at $2.95 per unit, for the total proceeds from the offering amount to $140 million, resulted in HEXO's shares being down 28%, at the time.

The stock continued to fall, reaching a new low on Wednesday when it was trading 2.41% lower at $1.62 per share after the market close.

In the last three months, the company's shares have been down 60%, Zuanic said.

"Lack of pro-forma visibility (three deals, capital raises, warrant and convertible debt issuance) and continued dilution have all weighed on HEXO shares." 

Still, Zuniac remains optimistic, saying that "constructive commentary (of the grounded kind) by incoming CEO Scott Cooper could be the spark the stock needs," adding that "seemingly, there is value here, with the stock trading at 1.9x CY22E sales, well-below peers."

In addition, HEXO is #2 in the Canadian recreational market, according to Zuanic's

estimates, which are based on Hifyre scanner data.

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