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

Nikola

  • 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.

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