A milestone reached for The Hydropothecary Corp. (TSX:HEXO) has GMP Securities analyst Robert Fagan maintaining his bullish take on the stock.
This morning, HEXO announced that Health Canada had granted final approval for the expansion of a manufacturing facility in Gatineau, Quebec.
“We are thrilled to that all 10 growing zones in our 250,000-square-foot greenhouse expansion are licensed with more plants moving in,” CEO Sebastien St-Louis said. “This is another achievement through our team’s exceptional planning and consistent execution as we continue to prepare for the adult-use cannabis market.”
Fagan says this is an unambiguously positive development for the company. He believes the company is building a track record for execution that should inspire confidence in the market.
“With all ten growing zones and the new manufacturing facility at B6 now licensed, HEXO has delivered on its promise to complete its 250,000 sq.ft. expansion by July 2018,” the analyst says. “By completing a major expansion project on time (somewhat rare in the Canadian cannabis industry), this reinforces HEXO’s strong track record of execution in our view, and gives us confidence the company will succeed in completing its larger 1m sq.ft. expansion by the end of 2018 as well. HEXO is also delivering well on our expectations for new product innovation, recently launching the only intimacy product for topical application on the market (Fleur de Lune), and succeeding in obtaining listings for its Elixir product line in B.C. This highlights another instance where HEXO has delivered on its promise to achieve product placements outside Quebec. In addition, HEXO has negotiated the industry’s largest one-year supply contract (20,000kg) with a provincial liquor board
thus far, providing solid revenue visibility. Despite the above, shares are trading at 16.5x and 5.5x 2019 and 2020 EV/EBITDA respectively, an average discount of ~35% to peers. We believe this discount is too steep, hence we maintain our bullish stance on HEXO.”
In a research update to clients today, Fagan maintained his “Buy” rating and one-year price target of $8.50 on The Hydropothecary Corp., implying a return of 92.3 per cent at the time of publication.