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HEXO: Analysts’ Target Price and Ratings

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HEXO (HEXO) stock has fallen since its dismal third-quarter performance. The company reported its results in June. However, the stock got a boost on September 20 after MKM Partners gave it a “buy” rating. The stock rose 10.6% on the same day. Let’s take a look at analysts’ target price and rating for HEXO.

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What are analysts saying about HEXO?

On September 20, MKM Partners initiated coverage on HEXO stock with a “buy” rating. Also, analysts gave a target price of 12 Canadian dollars. The target price is 105% higher than the current price.

Recently, I discussed how analyst Russell Stanley of Beacon Securities is optimistic about HEXO’s growth in fiscal 2020. The analyst gave a target price of $14.0, which represents an upside potential of 139% from its current trading price.

Latest target price update

The number of analysts covering HEXO stock didn’t change before the results. The consensus target price for the stock fell to 10.46 Canadian dollars from 10.55 Canadian dollars before the company’s earnings. The target price fell 0.85%. Currently, HEXO’s revised target price means a potential upside of 79% over the next 12 months.

Notably, CIBC downgraded HEXO to “neutral” from “outperform” and reduced the target price to 8.5 Canadian dollars from 9.5 Canadian dollars. Oppenheimer also downgraded the stock to “perform” from “outperform.”

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Peers’ earnings

Canopy Growth (CGC) (WEED) reported disappointing earnings for the first quarter of 2020 in August. The company missed analysts’ estimates by a wide margin. Canopy Growth also reported huge losses during the quarter.

In contrast, Aphria (APHA) reported strong fourth-quarter results. The company reported a better-than-expected top line and bottom line in the fourth quarter. Aphria also reported a positive adjusted EBITDA of 0.209 million Canadian dollars.

Tracking the trend

Over the past 12 months, HEXO stock received increased coverage from analysts due to its strong fundaments. The company has a positive outlook for the fourth quarter. HEXO expects to increase its production and revenues in fiscal 2020, which might have increased analysts’ confidence in the stock. Read HEXO: What’s the Word on the Street? to learn more about HEXO’s outlook and analysts’ fourth-quarter estimate.

Notably, the number of analysts covering the stock increased from seven to 16 during this period. HEXO’s target price increased gradually during this period. Also, analysts’ “buy” recommendations increased on the stock.

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Analysts’ ratings

While HEXO’s consensus target price has fallen after its earnings, analysts remain bullish on the stock. The overall “strong-buy” rating didn’t change from the period before its earnings release. HEXO missed its revenue estimate and reported a negative EBITDA, which might have caused the change in its target price and ratings.

Currently, among the 16 analysts covering the stock, three recommend a “strong-buy,” nine recommend a “buy,” three recommend a “hold,” and one recommends a “strong sell.”

Canopy Growth mainly has “buy” ratings on its stock and a target price of 54.5 Canadian dollars. Aphria mainly has “buy” ratings and a target price of 14.9 Canadian dollars. ACB mainly has “hold” ratings on its stock and a target price of 10.3 Canadian dollars.

Comparing HEXO with its peers

HEXO’s management announced during its earnings call that the company is ready for Cannabis 2.0. Recently, I discussed Aurora Cannabis’s expansion plans after edibles become legal next month. To learn more, read Cannabis 2.0: Aurora Cannabis Gears Up for Edibles Market.

Canopy Growth is also gearing up for the second phase of legalization. HEXO stock has fallen 30.3% since its inception. Since the company’s third-quarter earnings on June 12, the stock has fallen 31.5%. The stock price fell during the last few months, which resulted in a decrease in its valuation multiple for the stock.

In September, HEXO and Canopy Growth have gained 8.4%. Meanwhile, Aurora Cannabis and Aphria have lost 8.7% and 1.6%. HEXO hasn’t announced the date for its fourth-quarter earnings results yet. Investors are eager to see if HEXO’s fourth-quarter earnings will boost its stock. The Horizons Marijuana Life Sciences ETF (HMMJ) tracks the North American cannabis industry. HMMJ has lost 2.7% in September.

To learn more about the cannabis industry and regulations, read Cannabis: While the US Waits, the World Opens Up.

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