The Globe and Mail reports in its Thursday, Feb. 18, edition that CIBC World Markets analyst John Zamparo thinks Hexo's $235-million acquisition of Zenabis Global should "materially improve and accelerate" its profitability, prompting him to raise his rating to "outperformer" from "neutral." The Globe's David Leeder writes in the Eye On Equities column that Mr. Zamparo also elevated his share target to $13.50 from $5.60. Analysts on average target the shares at $5.05. Mr. Zamparo says in a note: "The most important part of this deal, as with any in the Canadian cannabis space in our view, is the synergies (estimated at $20-million; we forecast $15-million). Zenabis shares have struggled in the past, but this largely reflected balance sheet woes, which have been mostly addressed, and an all-stock deal to acquire a profitable player at four-times sales when HEXO trades at eight times provides meaningful value. With valuation in check versus peers (though we acknowledge the sector's well-above average valuations), moderate sales momentum, and the upcoming catalyst of positive EBITDA, we believe HEXO has upside." The Globe's guest columnist Michael Pe was bullish on Hexo on Jan. 19 when it could be had for $9.14.
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