Stock Analysis & Ideas

Nikola: Dilutive yet Necessary Capital Raise on the Horizon, Says J.P. Morgan

Any sniff of a capital raise usually has investors rushing to the exit gates, although the act is often crucial for a company to be able to meet its targets.

J.P. Morgan’s Bill Peterson thinks Nikola (NKLA) will raise capital sometime in the year’s second half but believes investors might eventually be more receptive to the news in this case.  

“While being dilutive to existing shareholders, it will ultimately be required to fund the company’s 2023 business plan – a critical year to build scale in its BEV business and launch its FCEV offering,” the analyst explained. “Thus, while we could see swift negative stock reaction to a capital raise, we think investors may ultimately view a raise positively as it removes a level of uncertainty in the business.”

That said, the timing of the raise is not all that, considering the “challenging” conditions in the capital markets. However, supposing the company’s objectives are going according to plan and the company is “expanding its customer pipeline,” Peterson expects Nikola to go ahead with the raise, which he thinks will probably be in the $300 million to $500 million range via equity.

Peterson’s comments come ahead of the electric truck maker’s Q2 earnings (August 4), when Peterson anticipates Nikola to post in-line results and stick to its full year guide.

The company has called for 50-60 deliveries in the quarter and for the full year has guided for between 300 and 500 deliveries, though this is dependent on based on the availability of components with battery packs “being the gating item.” Q2 revenues – at the midpoint – are expected to clock in at $16.5 million (same as consensus) and $120 million for the year. For Q3, Peterson is expecting revenue of $32 million, below the Street at $38.6 million.

All in all, there’s no change to Peterson’s Neutral rating, although on account of lowering revenue and profitability estimates for 2023/2024, the price target is trimmed from $10 to $7.5. Nevertheless, the figure still makes room for 12-month upside of 19%. (To watch Peterson’s track record, click here)

The outlook for Nikola on the Street appears a bit confusing. On the one hand all 5 recent reviews advise to stay on the fence, naturally resulting in a Hold consensus rating. However, all think the shares are undervalued; at $8.6, the average target represents potential upside of 36% from current levels. (See Nikola stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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