Nikola Corp. (NKLA) PT Lowered to $35 at JPMorgan, Offers 'Reasons to Be Constructive Heading into 2021', Reiterates Overweight

December 28, 2020 5:01 AM EST
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Price: $11.05 +3.17%

Rating Summary:
    4 Buy, 7 Hold, 0 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 8 | Down: 13 | New: 22
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JPMorgan analyst Paul Coster lowered the price target on Nikola Corp. (NASDAQ: NKLA) to $35.00 (from $40.00) while maintaining a Overweight rating.

The analyst comments "We rate NKLA Overweight. We believe the stock may not fully price in successful execution of the multi-year growth strategy, which yields earning power of ~$1.5bn EBITDA in 2027E. NKLA stock trades on very high multiples of distant-future revenue and EBITDA, which assume successful execution of a multi-year strategy that takes the company from pre-revenue (today) to revenue of $10 billion later this decade, from loss making to EBITDA margins of over 10%. To justify owning this stock, we think investors should apply a growth multiple to at-maturity revenue or earnings (circa 2027) and discount the stock to present value using an appropriate cost of equity or WACC. Conventional valuation techniques probably don’t make sense for at least another two years, which gets investors in proximity to meaningful revenues on an out-year basis. Our Dec 2021 price target goes to $35.00. We derive this price target by assigning a 30 times forward multiple to revised 2027E EBITDA, net out the assumed net debt as of 2026, and then discount the implied 2026 year-end equity value to year end 2021 using a 25% cost of equity (previously 22%). We then divide this value by the fully diluted share count to arrive at a 2021 year-end price target. We increased the discount rate with this note to reflect the elevated execution risk associated with the damage done to the brand by the founder before ending leadership of the company."

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