Lordstown Motors (RIDE) Falls as Morgan Stanley Downgrades to Underweight, Saying Foxconn Deal May Leave Little for Equity Holders

October 5, 2021 6:44 AM EDT
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Price: $4.78 -5.72%

Rating Summary:
    0 Buy, 2 Hold, 6 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 16 | Down: 18 | New: 32
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Lordstown Motors (NASDAQ: RIDE) shares are down 3.5% in pre-open trading Tuesday after Morgan Stanley analyst Adam Jonas downgraded the stock to Underweight from Equalweight and slashed his price target from $8 to $2.

The analyst notes the plant is being sold for $230 million, which is 1/5 of the firm's prior estimate of $1.3 billion. Jonas said while the Foxconn deal saves the plant, it leaves little for equity holders.

Further, the firm has lowered their forecasts which assume the Endurance is not commercially viable.

"Lordstown is negotiating a contract manufacturing agreement with Foxconn to make the Endurance and potentially other models on a new platform," Jonas commented. "We had previously assumed the Endurance project would be cancelled as we do not see a path to commercial viability at any appreciable scale. In our opinion, continuing with the Endurance likely exposes the company to the risk of further elevated cash burn and liquidity risks even in a contract manufacturing scenario which involves shifting much of the fixed cost burden (plant and most labor) to Foxconn."

The analyst has a Bull case of $8 per share, which is based on a bullish scenario of 70k units by 2030, 12% EBITDA margin. Meanwhile, the bear case is $0, based on a scenario where the Foxconn deal falls through and there are no other options.

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