Despite being viewed as the future of the auto industry, these have not been the best of times for the EV sector. Demand has softened and against a difficult economic backdrop, many of the companies trying to get a foothold in the space and ride the secular trend have been unable to meet previously set targets.
But it’s not only the EV makers per se that have suffered. Just like any other segment, the industry needs a supporting infrastructure and for EVs that means services such as battery providers and charging stations. And these companies have also found recent times to be hard going.
Looking at the state of the industry, TD Cowen analyst Gabe Daoud sees the struggles continuing for now, with some relief anticipated as the year progresses.
“1H will be characterized by adoption/growth struggles with 2H potentially providing improved sentiment on the back of Fed rate cuts,” Daoud recently said. “On charging, installation cadence & funding remains topical as a reliable & ubiquitous network is paramount in driving the next leg of adoption.”
Where charging specifically is concerned, despite the cloudy near-term outlook, Daoud believes the long-term opportunity remains intact, and he thinks that by 2030, US charging investment will reach $104 billion.
The key here, says Daoud, is to adhere to “stock selectivity.” And with this in mind, we decided to take a closer look at two EV charging stocks within his coverage, namely ChargePoint (NYSE:CHPT) and EVgo (NASDAQ:EVGO), to determine which one the analyst believes offers a more favorable investment opportunity at this moment. Here are the details.
ChargePoint
First up is a global leader in EV charging, the aptly named ChargePoint. The company does what it says on the tin and is a provider of EV charging solutions, offering a comprehensive network of charging stations and software services. Founded in 2007, ChargePoint has played its part in the transition towards sustainable transportation while its charging infrastructure spans across various sectors including commercial, residential, and fleet, catering to the diverse needs of EV drivers.
The company has a global presence and operates charging stations in 14 countries, offering hundreds of thousands of charging ports, claiming that every second someone plugs into the ChargePoint network. The company also boasts that 74% of Fortune 50 companies are customers.
With all that said, the stock has struggled badly over the past year with the shares down by an alarming 84%. A considerable amount of that drop came following ChargePoint’s mid-November announcement of its preliminary third quarter of fiscal 2024 results (October quarter). The company said revenue for the quarter will hit the range between $108 and $113 million, way below the prior forecast of $150 to $165 million.
In the end, revenue even came in below the new guide’s mid-point, landing at $110.28 million, amounting to a 12% year-over-year decline and falling short of the Street’s call by $8.3 million. As for the bottom-line, EPS of -$0.43 also missed analyst expectations, by $0.12.
Nevertheless, while Cowen’s Daoud is aware of the recent industry struggles, he sees the potential for ChargePoint to benefit from eventual EV adoption.
“Line of sight to vehicle deliveries or lack thereof has been well-telegraphed as macro headwinds have slowed EV demand growth expectations and thus the need for additional chargers,” Daoud explained. “However, utilization of CHPT stations continues to improve and would suggest the need for additional chargers. Recently, Ford announced it will supply over 9k E-Transit electric vans to the US Postal Service this year, which expects to install hundreds of news stations across the US this year as well. This is rather encouraging for CHPT as the company was one of three, through its partnership with Rexel, selected as an EVSE provider for USPS… The rollout of Mercedes’ North American Charging Network should also support growth next year…”
To this end, Daoud rates CHPT stock an Outperform (i.e., Buy), while boosting his price target from $3 to $4. That figure represents strong upside of 98% from current levels. (To watch Daoud’s track record, click here)
5 of Daoud’s colleagues join him in the bull camp and with an additional 12 Holds, the stock claims a Moderate Buy consensus rating. Going by the $3.21 average target, a year from now, investors will be sitting on returns of ~59%. (See CHPT stock forecast)
EVgo (EVGO)
From one aptly titled EV charging stock to another. EVgo is a leader in DCFC (DC fast charging) and operates one of the largest public fast-charging networks in the United States. The company boasts over 950 fast charging locations, serving 65+ metropolitan areas across 35 states, with north of 785,000 customer accounts.
EVgo places a strong emphasis on the use of renewable energy sources in its operations. Its goal is to provide a fast-charging experience that “leaves fossil fuels in the rearview mirror.” The company claims that over 145 million people across the U.S. live within 10 miles of one of its charging stations.
The company earns income through various channels, but mostly, its revenue comes via the transfer of electricity from the utility grid to the customer’s vehicle with the company charging a tariff on the electricity transferred.
The company has been exhibiting some impressive growth and in the most recently reported quarter, for 3Q23, revenue increased by 234% year-over-year to $35.1 million, outpacing the consensus estimate by $5.89 million. Network throughput notched a record 37 gigawatt-hours (GWh), for a 208% y/y uptick. At the bottom-line, the company delivered EPS of -$0.09, trumping the Street’s forecast by $0.07.
Still, the results haven’t helped the stock much with the shares showing one-year losses of 67%. The problem for EVgo, as pointed out by Daoud, remains one of profitability and specifically how to reach it.
“The level of xEV adoption needed to achieve profitability remains a question, though we’d argue current industry trends even with slower than expected growth could be enough to generate cash flows,” the analyst explained. “It’s no secret OEMs have been cautioning slower EV growth next year with Tesla highlighting lower volume growth vs. ’23 to focus on its next-gen car with goals of a more affordable EV. And while BNEF revised its 2024 sales forecasts lower, growth of +32% y/y leading to sales of 1.9MM is still rather robust and would create a total xEV passenger fleet in the US of over 6.7MM further driving better station economics for EVGO…”
“While LT optics are encouraging,” Daoud went on to add, “additional capital is still needed to reach FCF generation by FY27 as we model a $125MM capital raise in 2025 which will likely keep pressure on the stock.”
As such, Daoud rates EVGO stock as Market Perform (i.e., Neutral), and has lowered his price target from $5 to $4. To be fair, Daoud might as well have just said Buy given the new target still represents one-year returns of a bountiful 85%.
It’s essentially a similar story in the wider analyst community. Based on 4 Holds and 1 Buy, the stock claims a Hold consensus rating. However, most think the shares must be undervalued, given the $4.38 average price target implies the stock will climb ~103% higher over the 12-month timeframe. (See EVGO stock forecast)
Pulling back and looking at both reviews, it’s clear that TD Cowen sees ChargePoint as the superior EV charging stock for right now.
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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.
