While the Nikola (NKLA) story will probably go down as only an anecdote in 2020’s book of earth-shattering developments, it will still make for an interesting chapter.
There have been plenty of twists and turns already and the latest development has Nikola pivoting back to its original plan. At least that is what J.P. Morgan analyst Paul Coster thinks.
Prior to founder Trevor Milton’s departure, Nikola was meant to close a deal with General Motors. But the auto giant still hasn’t signed on the dotted line, and it is still unclear whether GM will throw its weight behind the development of the Badger – Nikola’s electric pickup truck.
Nikola reported Q3 earnings this week but with no product to sell, focus tuned to the earnings call and information on the progress of the GM partnership. Coster says the deal “remains under negotiation.” That said, the analyst believes Nikola might be preparing for an outcome where the deal isn’t consummated after all.
“Nikola appears keen on proceeding with the GM deal, but we sense that focus is mainly on the Class 8 initiative. The firm might still proceed with the Badger pickup initiative, but the CFO stated that it could require a capital raise in 2021 (owing to the commitment of up to $700mm in capex), whereas a deal that excludes Badger would position Nikola to execute the original Truck-only plan and exit 2022 with ~$300 million of cash on hand,” Coster noted.
A “best case scenario,” says Coster, involves a “successful negotiation of a GM deal, but of reduced scope to exclude the Badger initiative.”
It is quite likely GM is holding out until the SEC releases its review of the Hindenburg accusations. The short seller claimed Nikola was nothing more than a fraud perpetrated by Milton, which led to the founder’s resignation.
However, for Coster, Nikola remains a “story stock,” and the analyst remains on board “as long as the company executes to plan, and providing the stock a favorable risk-reward trade-off.”
To this end, Coster rates NKLA an Overweight (i.e. Buy) and has a $40 price target for the shares. What’s in it for investors? Upside of a whopping 88%. (To watch Coster’s track record, click here)
The Street’s average price target is not much lower; At $38.5, the figure could provide gains of ~80% over the next 12 months. Rating wise, the outcome is not quite as exuberant; based on 2 Buys and Holds, each, and 1 Sell, the stock has a Hold consensus rating. (See Nikola stock analysis on TipRanks)
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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.
