Nikola downgraded to ‘sell’ by CFRA amid supplier issues and potential ‘legal risks’

Nikola garbage Truck
  • CFRA analyst Garrett Nelson downgraded shares of Nikola to “sell” and lowered his price target to $12 on Thursday.
  • The analyst cited “supplier issues” with the Tre semi-truck and potential ‘legal risks’ from false statements in his reasoning.
  • The company’s 10-K confirmed several allegations made by Hindenburg Research in Sept. of last year.
  • Visit the Business section of Insider for more stories.

CFRA downgraded shares of Nikola to a “sell” on Thursday and lowered the price target to $12 per share after the electric-vehicle maker reported earnings.

Senior analyst Garrett Nelson cited “supplier issues” and potential “legal risks” as the main reasons for the downgrade.

Nikola was able to beat consensus earnings estimates in Q4 posting quarterly EPS of -$0.17 versus an expected -$0.24, but the pre-revenue company revealed its 2021 deliveries for the Tre semi-truck would total only 100 units due to supplier issues, down from 600.

As for legal risks to the company, Nikola disclosed in its 10-K that an internal review conducted by Kirkland & Ellis found at least nine statements made by the company and former CEO Trevor Milton were “inaccurate in whole or in part.”

This confirmed several allegations made by short seller Hindenburg Research back in September of last year. However, the 10-K also said that other statements made by Hindenburg were incorrect.

Nikola’s founder Trevor Milton stepped down on September 21, 2020, after fraud allegations were made public. Recent reports out of CNBC indicate Nikola has been forced to pay $8.1 million for its founder’s legal fees even after his departure.

Analyst Dan Ives of Wedbush wasn’t as concerned about potential legal risks as his peers, however. In a note to clients on Friday Ives said, “we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure.”

Ives called Nikola a “prove me” story and cited investments into hydrogen-powered battery technology, a friendly clean energy environment from the Biden administration, and partnership momentum as his reasoning.

Ives holds a “neutral” rating and a $25 price target on Nikola.

On the other hand, CFRA’s Garret Nelson said, “even absent its legal issues, we think NKLA stacks up less favorably versus other EV names.”

Nikola holds three “buy” ratings, eight “neutral” ratings, and now one “sell” rating from analysts.

Shares of the EV maker were down 4.99% as of 11:36 a.m ET on Friday.

NKLA chart
Read the original article on Business Insider

Nikola could fall 30% as ‘ambitious’ profit forecasts and Tesla’s first-mover advantage weigh on valuation, CFRA analysts say

nikola tre render 1
Nikola truck prototype.

  • CFRA analyst Garrett Nelson initiated coverage on EV maker Nikola with a “sell” rating and a $15 price target.
  • The price target implies a nearly 30% drop from Monday’s closing price.
  • Nelson said Nikola has “ambitious” profit forecasts and faces stiff competition from Tesla and others.
  • Watch Nikola trade live here.

CFRA analysts initiated coverage on electric vehicle maker Nikola with a “sell” rating and a $15 price target late on Monday.

Analyst Garret Nelson said in his note that Nikola could fall nearly 30% from Monday’s closing price due to “ambitious” profit forecasts, “significant execution risk”, and Tesla’s first-mover advantage.

Nelson noted Tesla’s dominance in electric vehicles will most likely translate to the commercial trucking segment that Nikola hopes to enter.

The analyst said following the launch of Tesla’s semi-truck later this year, that “it will become a preferred supplier to the Class 8 commercial truck market that NKLA intends to target.”

In an email to Insider, Nelson said Tesla will be able to “scale production more quickly given its size and cost of capital advantage over competitors” and “commercial customers will be much more comfortable buying these big-ticket vehicles from a proven EV manufacturer.”

Also, despite Nikola’s estimates for a 20%-25% profit range, CFRA sees the company remaining unprofitable for years to come. Nelson gave EPS loss estimates of -$0.70 for 2020, -$1.45 for 2021, -$1.40 for 2022, -$1.15 for 2023, and -$0.90 for 2024.

The analyst cited “the high fixed cost nature of vehicle manufacturing, particularly for smaller, niche OEMs” as his reasoning.

Nikola saw its share price rise over 600% amid a wave of EV bullishness in 2020, hitting highs of nearly $80 per share on June 9, 2020. The stock has reversed course though and has seen a steep fall, trading in the $15-$30 per share range over the past five months.

The EV stock can’t seem to mount a break-out amid increasing competition.

Nikola is scheduled to release earnings on February 25th after the closing bell. However, investors shouldn’t expect much because Nikola still has yet to produce revenues from its EV operations.

CFRA’s Nelson called the company “more of a business plan than a revenue-generating business” in his note to clients on Monday.

Still, some analysts are more bullish on the name. Wedbush’s Dan Ives upgraded shares of Nikola to “neutral” and raised his price target to $25 per share from $15 on February 1st citing the Biden administration’s green initiatives and a lack of “negative catalysts.”

“While some clear hurdles remain for Nikola to achieve its hydrogen and semi-truck vision over the next year, we believe most of the negative catalysts we were fearing have now played out in the market with a more balanced risk/reward on the name looking ahead,” Ives said in a note to investors.

Nikola traded down roughly 7% as of 1:33PM ET on Tuesday.

Nikola chart
Read the original article on Business Insider