On Wednesday, HEXO (TSE:HEXO) announced a new at-the-market equity program, which would allow it to issue common shares worth up to 34.5 million Canadian dollars. The company can sell the common shares through the Toronto Stock Exchange, the New York Stock Exchange, and other markets where common shares are listed. AltaCorp Capital and Oppenheimer are the agents for the program in Canada and the US, respectively. The company plans to utilize the proceeds for general corporate purposes. The new equity offering formed 6.7% of the company’s total market capitalization as of Tuesday’s closing price. So, investors were concerned about the dilution due to new equity offerings, which could lower the company’s EPS. Also, there are concerns about the company’s current cash position. All of these factors led HEXO stock to fall 11.9% on Wednesday and close at 1.11 Canadian dollars.
Meanwhile, HEXO also said that it completed the previously announced sale of its Niagara, Ontario facility on June 15. The company received 10.25 million Canadian dollars from the sale. HEXO sold the facility to better align its production with the forecasted demand.
HEXO’s Q3 performance was impressive
Last week, HEXO reported a better-than-expected third-quarter performance. The company posted revenues of 22.1 million Canadian dollars, which beat analysts’ expectations of 19.9 million Canadian dollars. The strong growth in sales of Original Stash, its value brand, supported the company’s sales growth. The EBITDA losses also improved from 8.5 million Canadian dollars to 4.3 million Canadian dollars sequentially. HEXO’s management expects to achieve positive EBITDA by the first half of the next fiscal year. As a result, Hexo stock rose by 25.9% last week.
So far this year, HEXO has lost 46.4% of its stock value. The stock has underperformed cannabis ETFs and its peers. The Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) has declined by 15.4% during the same period. Aurora Cannabis (NYSE:ACB), Canopy Growth (TSE:WEED), and Aphria (NYSE:APHA) have fallen by 46.6%, 16.1%, and 12.7%, respectively.
Analysts’ expectations and recommendations
Since HEXO reported its third-quarter earnings, Jefferies, Cormark Securities, Stifel, Eight Capital, MKM Partners, CIBC, and Alliance Global have all raised their target prices. As of Wednesday, analysts’ consensus target price was 1.48 Canadian dollars. The target price represents a 12-month return potential of 33.5%. Overall, analysts are still bearish on the stock. Among the 14 analysts, 50% recommend a “sell,” 14.3% recommend a “buy,” and 35.7% recommend a “hold.”
Analysts expect HEXO to report revenue of 79.7 million Canadian dollars in fiscal 2020 and 143.4 million Canadian dollars in fiscal 2021. These expectations represent a YoY growth of 67.5% in 2020 and 80% in fiscal 2021. Moving to profitability, analysts expect the company to report its first positive EBITDA in the third quarter of fiscal 2021 despite management’s guidance of becoming profitable in the first half of fiscal 2021. They expect the company to report an EBITDA loss of 44.0 million Canadian dollars in fiscal 2020 and a positive EBITDA of 1.3 million Canadian dollars in fiscal 2021.