By
Svetlana Soroka
April 18th, 2024
Nikola (NKLA) stock soared 34% on Wednesday after JPMorgan turned bullish on the company, citing a more attractive valuation following the recent selloff.
JPMorgan analyst Paul Coster upgraded the shares of American hybrid truck design and manufacturing company Nikola Corporation (NASDAQ: NKLA) commenting they are “starting to look attractive for long-term investors.” Therefore, he upgraded Nikola stock from Neutral to Overweight.
After the upgrade, Nikola’s founder Trevor Milton posted a drive-demo of the company’s fuel-cell semi-truck. Nikola stock immediately rose 26% during Wednesday’s session, back above the firm’s price target of $45. It closed at $54.03 (+34%) and rose another 7% in the pre-market.
Coster explained:
“We believe the stock does not fully price in the successful execution of the multi-year growth strategy, which yields earnings power of ~$1.7bn EBITDA in 2027.”
Can Nikola Stock Follow the Footsteps of Tesla?
The leading analyst accents a “number of potential positive catalysts in coming weeks and months” adding the announcement of a partner to produce its Badger pick-up truck, distribution plans for hydrogen charging stations in the UK, and “potentially accelerated implementation plans for the FCEL truck in the U.S.”
This truck company has been a focal point of talks since its initial public offering in early June. Of course, it had been almost immediately compared to Tesla Inc (NASDAQ: TSLA). Milton said he hopes to someday “take the throne” from the Ford Motor Company (NYSE: F) F-150. But what happened exactly is that it had its public debut on June 4 after a reverse merger with VectoIQ, a blank check or SPAC company. However, investors should be aware that the volatility in Nikola stock, largely driven by short-term traders, will continue until SPAC shares are freed up to trade.
Milton often gives hints regarding designs and inside stories and is often defending the company against its opponents.
Coster commented:
“In our view, NKLA is currently a story-stock, but we are on board as long as the company executes to plan, and providing the stock offers a favorable risk-reward trade-off. We could also get less constructive in a hurry, if the firm fails to execute to plan, or if competition ratchets up faster than we anticipate.”
For now, the analyst comments have been mixed. However, Cowen last month gave the stock an Overweight rating and a price target of $79. On the other hand, RBC Capital decided to give it a price target of $46.
Cautious with Predictions
Be is at it may, Coster is aware that there are downside risks as well. Some of them include the fact that “the company is authorized to issue equity and is likely to do so (alongside debt) to fund the growth of the business.” Also, he is cautious when predicting anything because he is aware that potential insiders could sell shares when the lock up expires.
With all that being said, Coster stated that investors should know that this is a “story stock,” and the company still has to prove that it can accomplish its ambitious business plan. Also, there is no revenue expected until late 2021 at the earliest, but Coster said that he will be “on board” as long as the company executes to plan.
Also, we shouldn’t forget that Nikola has a lot of plans: The “Nikola World” event in April of 2019 unveiled 5 new electric vehicles. The company showed a line of electrified Powersport Vehicles focused on convincing the public of its EV technology capability. The company also has plans to create a network of hydrogen refueling stations.
However, none of these plans have actually become a real-world product yet. Still, Nikola’s market cap is a bit over $19.5 billion. If we compare that to other automakers, it’s an incredible price. Fiat Chrysler Automobiles NV (BIT: FCA) currently clocks in with a market cap of $20 billion. Ford is at $24 billion.