Automaker Nissan (NSANF) (NSANY) recently discovered that some of the biggest moves could also be the most terrifying. At least, as far as the market is concerned. Word recently emerged that the company was poised to end the development of gas engines. This is actually in keeping with some earlier developments from Nissan, but it’s not proving popular with investors, who saw the stock drop nearly 3% on Friday.
It did, however, turn those losses around slightly with Monday morning trading. This could be seen as a positive move if it works out just right, so I’ll stand bullish on the company for now. Be ready to make a move, though, if this doesn’t pan out.
Nissan, over the last 12 months, has seen its share of sharp ups and downs, though it maintains a very tight range. For instance, back in January 2021, the company went from just over $10 to nearly $12.50 in the space of a month. Percentage-wise, that’s a huge move, but in relative terms, it’s fairly narrow. Regardless, the gains proved unsustainable. By mid-April, the company was back to around the $10 per share mark. Indeed, by mid-May, it had slipped under the $10 threshold.
However, it recovered to over $10 by early June. A series of up and down movements followed, with the company clearing $11 per share on several occasions. It also retested lows under $10 a share at several points. The company led off 2022 with a sizable gain, going from just over $9.60 to just over $11.30 at one point, before sliding back down around $10 once more.
It’s worth noting that Nissan’s two different tickers, NSANF and NSANY, trade at two different prices. The prices mentioned above are related to the NSANY ticker.
The latest news about ending the development of gas engines seems to have rattled investors. The upcoming Nissan Note is poised as a leader in meeting “…demand from a zero-emission society.”. The Note will be available only as a hybrid car.
Not the First Time We’ve Heard This
If this move is catching investors by surprise, it probably shouldn’t. The extent of the move might be a surprise. The move itself was more extensively telegraphed. A little over a week ago, Nissan—along with Mitsubishi and Renault (RNLSY) —announced that they would be putting significantly more investment in electric cars.
Given the success of other electric vehicle operations of late, like Tesla (TSLA) and its explosive upward growth, it’s hardly surprising to see other automakers get in line. Who doesn’t want to stake a claim to a piece of what looks like a major new growth market already in progress?
However, that Nissan is throwing over the gas engine may be just a step too far. After all, the electric car market is growing. There’s no mistake on that front. Regardless, there are still plenty out there for whom gas is the only real option, at least right now.
Consider how many places have winter weather that would be a challenge for electric vehicles. Slogging through slush on the roads and snow in the driveways tends to take quite a bit of power. Additionally, these vehicles all but require heaters to operate effectively. Diverting battery life from a drive train to an internal electric heater would reduce the vehicle’s effective range for several months of the year.
In a gas-powered car, waste heat from the engine block provides that heat. In an electric car, that’s not an option. Thus, Nissan loses its ability to compete in such markets unless it has access to hitherto-unknown technology.
Regardless, Nissan needs something to put life back in its operations. Nissan’s dividend history shows it once paid routinely. It also raised dividends regularly from 2015 forward. However, it hasn’t actually paid a dividend since September 2019. Thus, clearly, a new supply of ready cash would be helpful.
Wall Street’s Take
Turning to Wall Street, Nissan has a Hold consensus rating. That’s based on two Buys, one Hold, and one Sell rating assigned in the past three months. Additionally, the average Nissan price target of $7.07 (for the NSANF ticker) implies 36% upside potential. Analyst targets range from a low of $6.94 to a high of $7.20
Concluding Views
Nissan’s commitment to electric vehicle development is laudable from an environmental and an economic standpoint. However, throwing over an entire market segment in the process doesn’t seem like a smart move. With so many others working to develop electric vehicles, this could be what Nissan needs to recover.
It is a strategy that requires everything to go according to plan. We know how seldom that actually works out. Still, it’s a bold move and reason enough to be at least moderately bullish. Considering the attractive valuation Nissan carries right now, that’s particularly true.
When you can buy 100 shares of a company for the price of a decent television, you can comfortably take advantage of even modest upticks. Nissan’s plans for gain may not work out, but realizing even a slight boost in the share price could do well for investors.
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