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Will Hexo’s Q3 Earnings Bring Positive News?


Jun. 10 2020, Updated 7:39 a.m. ET

Hexo (TSE:HEXO) will likely report its results for the third quarter of fiscal 2020 on Thursday before the market opens. The stock has been struggling for a while now. To make matters worse, the company even received a listing warning from the NYSE. The stock fell below the NYSE trading standard of $1. However, due to the rise in cannabis sales amid the COVID-19 pandemic, the stock price has seen some positive results. The stock even rose 48.7% on June 8 and trade above $1. Will the surge continue?

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What will Hexo’s Q3 results reveal?

Cannabis companies have been hopeful due to rising cannabis sales. Hexo’s revenue estimates look good due to better sales. Analysts expect Hexo to report revenue growth of 53.0% to 19.9 million Canadian dollars in the third quarter. Sequentially, the amount will be an increase from revenue of 17.01 million Canadian dollars in the second quarter. Most of the Canadian provinces declared that cannabis is an essential item. However, Hexo has been missing analysts’ estimates for a while now. We’ll have to see if the company can beat the estimates in the third quarter.

Analysts expect the fourth-quarter revenue to rise to 22.5 million Canadian dollars. For the fiscal year, the company could report revenue of 75.2 million Canadian dollars. Analysts expect the revenue to show consistent growth in fiscal 2021. The company has Cannabis 2.0 products, including CBD beverages, that it plans to launch in the US through its new joint venture with Molson Coors (NYSE:TAP). For the third quarter, analysts expect Hexo to report an EBITDA loss of 8.6 million Canadian dollars, which is lower than the second-quarter loss of 10.3 million Canadian dollars. However, the losses could be higher than 1.9 million Canadian dollars reported in the third quarter of 2019.

The fourth-quarter loss could come in lower at 7.1 million Canadian dollars. For the fiscal year, the company could report an EBITDA loss of 49.6 million Canadian dollars. Analysts don’t expect the company to report a positive EBITDA before the third quarter of fiscal 2021.

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Is there hope?

After receiving the NYSE listing, the company has until December 16 to get its share price up. Besides the stock dilution option, the company has to also show good earnings results and strategies to convince investors that there’s hope. Currently, most of the analysts are bearish on the stock. Lorne Steinberg, a portfolio manager and president of Lorne Steinberg Wealth Management, mentioned why he would avoid Hexo. To learn more, read Why Lorne Steinberg Thinks Hexo Is a Pass.

The concerns that cannabis companies had last year, like the slow roll-out of legal stores, could change this year. Ontario is ready to open new stores if there aren’t regulatory delays after the pandemic retreats. Aurora Cannabis (NYSE:ACB) also suffered from the same concerns last year and repeatedly disappointed investors. Surprisingly, the company beat analysts’ revenue estimates in the third quarter and reported year-over-year growth.

Most of the analysts have a “sell” rating on the stock. Currently, 14 analysts cover Hexo stock. Among the analysts, two recommend a “buy,” five recommend a “hold,” four recommend a “sell,” and three recommend a “strong sell.” The average target price on the stock is 1.26 Canadian dollars, which is 13% lower than its last trading price. The stock closed at 1.44 Canadian dollars on Tuesday. Meanwhile, Aurora Cannabis also has a majority “hold” rating and an average target price of 14.24 Canadian dollars.

So far, Hexo has gained 57.9% in June, while the Horizons Marijuana Life Sciences ETF has gained 7.0%. Canopy Growth (NYSE:CGC)(TSE:WEED) and Aurora Cannabis have gained 7.5% and 5.0% as of Tuesday.

Stay with us to learn how Hexo performed in its third-quarter results.


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