HEXO is trading at a big discount to its cannabis peers, Beacon Securities says

With the recent harvesting of its first crop from the company’s new one million square foot greenhouse, HEXO (HEXO Stock Quote, Chart TSX:HEXO) has reinforced its position as a major cannabis producer, according to Beacon Securities analyst Russell Stanley, who in a note to clients on Monday maintained his “Buy” rating and $14.00 target.

HEXO Corp on Monday announced the first harvest at its Building 9 expansion in Gatineau, Quebec, with CEO and co-founder Sébastien St-Louis stating that it showcases the company’s dedication and commitment.

“We are very proud of our continued ability to execute on our plans, creating value for our shareholders and demonstrating our commitment to our customers,” St-Louis said in a press release. “This cultivation milestone means that an expanded HEXO product offering will be available to more Canadians shortly.”

Stanley says, “We view this milestone positively as the expanded capacity allows HEXO to expand its shelf space penetration with provincial buyers, building on its position as the largest supplier in Quebec. Plants had been moving into the greenhouse since January, and the company will continue to ramp up to its full annualized capacity of 108,000 kg.”

The analyst estimates that HEXO now trades at a 60 per cent discount to the 36x average among cannabis companies with a $1 billion-plus market cap and at a 76 per cent discount to its US-listed peers. He notes the company’s net revenue guidance provided last month ($450 million in fiscal 2020) with its second quarter financials, saying, “We believe this demonstrates management’s high level of conviction in its sales outlook, particularly given how extremely rare formal revenue guidance is in this industry.”

For upcoming catalysts, Stanley refers to the closing of HEXO’s acquisition of Newstrike Brands, additional partnership and/or product development news and the company’s third quarter results due in June. His $14.00 target represents a projected return of 37 per cent at the time of publication.