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$925M Acquisition Of Redecan Could Create A Brighter Future For Hexo Corp.

$925M Acquisition Of Redecan Could Create A Brighter Future For Hexo Corp.

Cantor Fitzgerald issued a new report on Hexo Corp. (TSX:HEXO) (NASDAQ:HEXO) after the company announced the $925 million acquisition of Redecan, Canada’s largest privately-owned licensed producer.

Analyst Pablo Zuanic maintained a Neutral rating but increased the 12-month price target to CA$3.45 ($2.73) from CA$3.40 ($2.70) after tweaking pro forma estimates. 

Hexo shares were $2.48 at the time of this writing, mid-afternoon Tuesday.

“We will remain Neutral for now, partly on a legacy of continued dilution, but if over time, all this translates to a profitable cash generating LP (one of the largest, if not the largest), then we think the stock should start to rerate at some point,” Zuanic wrote.

According to the firm’s analysis, key potential drivers for the company going forward are:

  • Investors getting a better sense of the scale and prowess of the combined company on an ongoing basis.
  • HEXO starting to report positive EBITDA in FY22.
  • More visibility about the company’s U.S. strategy.
  • Management clearly stating that further stock dilution is unlikely in the year ahead.