Major Broker Dealers Had Mixed Reactions To Hexo Corp’s Earnings Release

Last week, HEXO Corporation (HEXO.TO) (HEXO) released second quarter financial results and the market initially responded favorably to the numbers, sending the stock more than 10% higher in pre-market trading.

After the market opened, the positive trend quickly reversed course and HEXO ended the day down more than 5%. The volatile price movements caught the attention of two broker-dealers who changed their respective price targets on HEXO and we found this to be significant.

One of the broker-dealers was MKM Partners which raised its price target on HEXO to $8 from $1.30 (CAD). When compared to other broker-dealers, the $1.30 (CAD) price target was substantially lower and we believe that the bank had failed to change the price target after HEXO completed a reverse split in late 2020.

CIBC was the other broker-dealer to change its price target on HEXO. The bank slightly lowered its price target to $13 from $13.50 (CAD). After Thursday’s drop, HEXO is trading slightly above $9. CIBC’s price target implies almost 45% upside to HEXO’s closing price on Thursday. Going forward, we will monitor how banks respond to HEXO in the form of future ratings or price target changes.

When you compare the performance of HEXO’s business on a year-over-year basis, there is a lot that we are excited about. The quarter marked the company’s seventh consecutive quarter of improving adjusted EBITDA and we are favorable on this trend. When compared to the same quarter last year, HEXO recorded a 94% increase in revenue which we attribute to the sale of cannabis beverages (CBD and THC) NS additional non-beverage recreational cannabis products.

Going forward, we expect HEXO to continue to report increasing revenue numbers and will monitor how the management team is able to capture additional market share of Canada’s recreational market. We believe the business has been nothing short of a turnaround story and we will continue to closely follow the trend from here.

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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