Yahoo Finance HEXO Corp. (TSE:HEXO) Analysts Just Cut Their EPS Forecasts Substantially
Market forces rained on the parade of HEXO Corp. (TSE:HEXO) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
After this downgrade, HEXO's eleven analysts are now forecasting revenues of CA$238m in 2022. This would be a sizeable 93% improvement in sales compared to the last 12 months. The loss per share is expected to ameliorate slightly, reducing to CA$0.35. However, before this estimates update, the consensus had been expecting revenues of CA$266m and CA$0.31 per share in losses. Ergo, there's been a clear change in sentiment, with the analysts administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
See our latest analysis for HEXO
The consensus price target fell 9.8% to CA$2.43, implicitly signalling that lower earnings per share are a leading indicator for HEXO's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic HEXO analyst has a price target of CA$8.00 per share, while the most pessimistic values it at CA$1.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that HEXO's rate of growth is expected to accelerate meaningfully, with the forecast 140% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 63% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 29% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect HEXO to grow faster than the wider industry.
The Bottom Line
The most important thing to take away is that analysts increased their loss per share estimates for this year. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
There might be good reason for analyst bearishness towards HEXO, like major dilution from new stock issuance in the past year. Learn more, and discover the 2 other concerns we've identified, for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
