Will Hexo's New CEO Help The Cannabis Giant Pivot Towards Positive EBITDA?

Financial analysis firm Cantor Fitzgerald issued a new report on Canadian cannabis LP Hexo Corp. HEXO, after the company posted a net loss of $68 million with net sales of $38.7 million in the fourth quarter, with adjusted EBITDA worsening from the previous quarter. 

The analysis maintained a Neutral rating but lowered the 12-month price target to C$2.10 ($1.70) from C$2.29. Hexo shares closed Friday’s trading session at $1.48.

Price target was already lowered earlier this week by the firm.

Analyst Pablo Zuanic said Hexo beat sales estimates in the July quarter on the back of exports and bulk domestic sales, but sales for the core domestic recreational and medical units came in below the firm’s bearish estimates.

“The new CEO, MolsonCoors veteran Scott Cooper, just started so today’s call did not provide a blueprint about a path forward,“ writes Zuanic.

The analyst said that sitting on a potential to become the first or second franchise overall, with greater operational and financial discipline, HEXO could become an interesting turnaround story. However, he thinks the senior convertible debt of $368 million issued in May of this year (due by May 2023, but with monthly option conversion features) will be a source of overhang. 

The analyst stays Neutral, but believes that with a new CEO, a relevant domestic platform after the Redecan deal, and at 3x sales, HEXO shares are inexpensive. 

“That said, question marks remain about future direction, pivot away from value, the state of the acquired businesses, and path to positive EBITDA,” concluded Zuanic.

Image by Eugenio Cuppone from Pixabay.