23 Oct

Could HEXO’s Q4 Earnings Boost Its Stock Price?

WRITTEN BY Rajiv Nanjapla

HEXO (HEXO) will report its fourth-quarter earnings before the market opens on Thursday. So far, there has been a lot of pessimism surrounding the stock.

HEXO’s stock performance

As of Tuesday, the company has lost 35.2% of its stock value this month. The abrupt resignation of its CFO, a lower-than-expected preliminary fourth-quarter revenue guidance, and analysts’ downgrade have all been weighing on the company’s stock price. So, can HEXO shrug off all of the pessimism with a strong fourth-quarter performance?

Last week, Aphria (APHA) reported its first-quarter earnings, which beat analysts’ EBITDA and EPS estimates. The impressive first-quarter performance caused the stock to rise over 18% on October 15. Notably, the stock closed the day 15.5% higher. Aphria’s strong performance also pulled the entire cannabis sector up. Will HEXO have the same performance?

Analysts’ estimates

Analysts expect HEXO to report revenues of 16.0 million Canadian dollars. Sequentially, analysts’ estimates represent a rise of 23.3% compared to a fall of 3.1% in the third quarter. We expect the company’s expanded production capacity and increased market penetration to drive its revenues. In May, the company completed the acquisition of Newstrike Brands. The acquisition increased HEXO’s annual production to 150,000 kilograms per annum. Also, the deal expanded the company’s market presence to eight provinces in Canada. HEXO’s management expects its fourth-quarter revenues to be 14.5 million–16.5 million Canadian dollars.

Analysts expect HEXO’s EBITDA to fall from -1.9 million Canadian dollars in the third quarter to -11.1 million Canadian dollars in the fourth quarter. They expect the company’s gross margins to fall and the SG&A expenses to rise. So, they expect HEXO’s operating loss to increase, which would lower its EBITDA.

Analysts’ recommendations for HEXO

As of Tuesday, 16 analysts covered HEXO. Among the analysts, one recommended “strong-buy,” seven analysts recommended a “buy,” seven recommended a “hold,” and one recommended a “sell.” Analysts’ consensus target price is 6.05 Canadian dollars, which implies a 12-month return potential of 78.4%.

Since the beginning of October, Bank of America Merrill Lynch, Roth Capital, GMP, and Eight Capital have all downgraded HEXO stock. Meanwhile, Canaccord Genuity, Jefferies, Cormark, and CIBC have all lowered their target price for the stock. However, Jefferies upgraded the stock to “hold” from “underperform.”

YTD stock performance

After returning 15.2% in 2018, HEXO has lost 28.0% of its stock value this year as of Tuesday. Aurora Cannabis (ACB), Canopy Growth (WEED) (CGC), and Aphria have fallen 30.8%, 24.6%, and 19.6%, respectively, year-to-date. The cannabis sector has underperformed the broader equity market this year.

Aurora Cannabis will report its earnings for the first quarter of fiscal 2020 next month. To learn more, read Aurora Cannabis: What to Expect from Its Q1 Earnings.

For analysts’ ratings and marijuana-related news and updates, please follow 420 Investor Daily.

Latest articles

Since my last article about Nvidia (NVDA), the stock has risen from $196.86 to $208.57. I expect a further rise after today's earnings results.

TJX Companies (TJX) is scheduled to announce its fiscal 2020 third-quarter earnings results on November 19. Its third quarter ended on November 2.

AT&T stock is currently trending downward in today’s trading session. It’s down about 1% as of 11:52 AM ET. The stock fell after HSBC downgraded its rating.

Canopy Growth reported its second-quarter earnings results today. It's already down 16.07% on the day and is trading at 20.52 Canadian dollars on the TSE.

The EIA released its inventory report at 10:30 AM ET. WTI crude oil prices rose around 0.4% at 11:31 AM ET from their last closing level.

Alibaba stock has seen turbulence throughout the year, as the US and China have often been at odds. It fell around 2.4% on November 13.