Hexo Surprises With 1Q Sales Beat; Top Analyst Sticks To Hold

Hexo Corp. generated better-than-expected revenues and posted a lower-than-feared EBITDA loss in the first quarter. Shares of the Canada-based cannabis company advanced 2.9% in Tuesday’s pre-market session, after closing flat on Monday.

Hexo’s (HEXO) 1Q revenues of C$29.5 million surged 103% year-over-year and came ahead of the Street’s estimates of C$14.5 million. Meanwhile, 1Q revenues grew 9% sequentially, driven by an “8% growth in adult-use cannabis sales and 54% growth in adult-use beverage,” the company said.

The company reported an adjusted EBITDA loss of C$0.42 million in 1Q, compared to a loss of C$3.25 million in the year-ago period. Analysts had forecasted a loss of C$2.8 million for the reported quarter.

“This was the sixth sequential quarter of Adjusted EBITDA improvement, as we march towards being Adjusted EBITDA positive,” the company stated.

Hexo’s CEO Sebastien St-Louis said, “Today’s record revenue performance reflects our commitment to providing consumers with high-quality products, at reasonable prices, for all occasions. We continue to hold the number one market share position in Quebec, while continuing to aggressively expand into other markets.” (See HEXO stock analysis on TipRanks)

On Dec. 14, Oppenheimer analyst Rupesh Parikh maintained a Hold rating on the stock. The analyst said that, “Improving gross margins and more stringent expense controls contributed to the upside surprise” in 1Q. Parikh added, “We look favorably upon the progress at HEXO in recent quarters, and the path to positive adjusted EBITDA is now in clear sight.” However, the analyst remained sidelined on the stock, adding that the company is “driven by a continued challenging industry backdrop, valuation, and still muted profit potential in the intermediate term.”

Like Parikh, the Street is also sidelined on the stock with a Hold analyst consensus. The average price target stands at $0.85 and implies downside potential of about 15.8% to current levels. Shares have declined by 36.5% year-to-date.

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