On Friday, Deutsche Bank revised its price target for Nikola Corp . (NASDAQ:NKLA), a manufacturer of zero-emission vehicles, from $2.00 to $1.50 while maintaining a Hold rating on the stock. The adjustment reflects a more conservative stance on the company's future performance, with lowered expectations for vehicle deliveries and gross margins.
The bank now anticipates that Nikola will deliver approximately 1,100 units by 2025, a decrease from the previously estimated 1,500 units. This revision is accompanied by a reduction in gross margin forecasts, now expected to be at -22% as opposed to the earlier -8%. The bank's analysts have taken a cautious approach, awaiting the company's execution throughout 2024 before revising their outlook.
Deutsche Bank also adjusted its projections for Nikola's profitability timeline, expecting the company to achieve positive gross margins in 2026, which is a year later than the company's own target of 2025. The bank's analysis suggests that Nikola will approach breakeven EBITDA in 2026, indicating a longer path to financial stability than previously anticipated.
The new price target of $1.50 is derived from applying a 2.5x multiple to the bank's reduced 2025 sales estimates for Nikola, which have been discounted back at a rate of 10%. Despite the lowered expectations and price target, Deutsche Bank continues to advise investors to hold their positions in Nikola, signaling a wait-and-see approach to the company's progress in the coming years.
InvestingPro Insights
As investors digest the revised price target from Deutsche Bank, current data from InvestingPro provides a more granular look at Nikola Corp. (NASDAQ:NKLA). With a market capitalization of $812.43 million, the company's financial health and operational performance are key areas of focus. Notably, Nikola holds more cash than debt on its balance sheet, an InvestingPro Tip that suggests a degree of financial flexibility despite the challenges it faces.
Analysts following Nikola have recently adjusted their sales growth expectations positively for the current year, aligning with Deutsche Bank's anticipation of the company's future vehicle deliveries. However, it's important to note that Nikola's revenue growth has seen a significant quarterly increase of 75.71% as of Q1 2023, a figure that may lend some optimism to the company's ability to scale its operations over time.
Yet, challenges remain evident. Gross profit margins have been weak, with a staggering -597.3% as of the last twelve months ending Q1 2023, reinforcing Deutsche Bank's conservative stance on the company's gross margins. Additionally, the InvestingPro Fair Value estimate for Nikola stands at $0.87, which is below both the analyst target and the current trading price, suggesting that the stock may be overvalued at its previous close of $0.7.
For investors seeking a more comprehensive analysis, there are over 15 additional InvestingPro Tips available, including insights into earnings revisions, stock volatility, and profitability expectations. Interested readers can enhance their investment strategy by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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