Nikola Slumps After Capital Raising Filing

Shares in electric truck maker Nikola Corporation (NKLA) tumbled 3.75% in extended-hours trade Monday after the company announced through an SEC filing that it plans to undertake a $100 million stock offering. According to the filing, Nikola intends to use the funds raised for general corporate purposes. The company said this may include completing its Arizona manufacturing facility and developing its commercial electric and fuel-cell commercial and hydrogen-station infrastructure.

Despite the company reporting a fourth-quarter loss that came in narrower than many analysts had expected (17 cent EPS loss vs. 24 cent loss), management disappointed investors by not providing further progress about how it’s traveling on turning EV truck designs into sales. The quarter was also marred by fellow automaker General Motors Company (GM) unwinding an equity stake in the company and exiting a partnership to build Nikola’s flagship Badger pickup truck.

Through Monday’s close, Nikola stock has a market value of $6.69 billion and trades over 50% higher over the past year. However, since the company’s latest earnings report on Feb. 25, the shares have shed 13.5%.

Wall Street View

Earlier this month, JPMorgan analyst Paul Coster downgraded Nikola to ‘Neutral’ from ‘Overweight,’ and trimmed his price target to $30, down from $33. The analyst said he thinks much of the good news is already built into the stock but noted that it may rally again later this year as the first fuel cell electric vehicle prototype becomes a reality.

Other analysts covering the stock want to see more from the company before committing to upgrades. Currently, it receives one ‘Buy’ rating and six ‘Hold’ ratings. Twelve-month price targets range from a Street-high $47 to $17 low. Meanwhile, Monday’s $17.06 close sits 49% below the median target price of $25.50.

Technical Outlook and Trading Tactics

Over the past six months, Nikola shares have found support at the crucial $14 support level after steep declines. The recent bounce from this closely watched area also coincides with a cross of the moving average convergence divergence (MACD) indicator to generate a buy signal.

Active traders who enter here should book profits on a move up to key overhead resistance at $29. Consider placing a stop-loss order beneath this month’s swing low at $14.05.

For a look at today’s earnings schedule, check out our earnings calendar.

Nikola Shares Plunge Pre-Market on Founder Trevor Milton’s Resignation

Nikola Corporation’s shares slumped over 30% in pre-market trading on Monday after its founder Trevor Milton announced to voluntarily step aside as executive chairman and from the Board following allegations of fraud and nepotism.

The Board accepted his resignation, and Stephen Girsky, former Vice Chairman of General Motors Co. and a member of Nikola’s Board, has been appointed Chairman of the Board, effective immediately.

Short-seller Hindenburg Research said in a scathing report earlier this month that it had gathered enough evidence to show that Nikola and Milton made false claims about company’s proprietary technology to form partnerships with large automakers, Reuters reported.

The designer and manufacturer of zero-emission battery-electric and hydrogen-electric vehicles has rejected all the accusations and threatened to take legal action against Hindenburg.

“Nikola is truly in my blood and always will be, and the focus should be on the Company and its world-changing mission, not me,” said Milton, who owns about 20% of the stake in Nikola.

“So I made the difficult decision to approach the Board and volunteer to step aside as Executive Chairman. Founding Nikola and growing it into a company that will change transportation for the better and help protect our world’s climate has been an incredible honor.”

Nikola’s shares plunged more than 30% below $24 in pre-market trading on Monday; the stock is up over 300% so far this year.

Nikola stock forecast

Five analysts forecast the average price in 12 months at $55.75 with a high forecast of $79.00 and a low forecast of $45.00. The average price target represents a 63.06% increase from the last price of $34.19. All those five equity analysts, two rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

RBC raised their stock price forecast to $49 from $46 and Wedbush initiates coverage with neutral rating and $45 price target.

Other equity analysts also recently updated their stock outlook. Cowen issued an “outperform” rating and a $79 price target for the company. Royal Bank of Canada issued a “sector perform” rating and a $46 price target for the company. Deutsche Bank issued a “hold” rating and a $54.00 price target for the company. At Last, JP Morgan Chase & Co. raised Nikola from a “neutral” rating to an “overweight” rating and set a $45.00 price target.

Analyst views

“We believe that Nikola is well-positioned to address the growing need for low emissions and zero-emission vehicles in the Class 8 trucking market. The company’s focus on battery and hydrogen technology and use of strategic partners particularly for vehicle manufacturing should allow for a fairly smooth production ramp, in our view,” said Jeffrey Osborne, equity analyst at Cowen and Company.

“Longer term we see the company evolving into a more broad-based energy technology company as hydrogen fueling infrastructure is slowly built out,” Osborne added.

Upside and Downside Risks

Upside: 1) A faster ramp of production in Ulm, Germany at Iveco to achieve 1H21 production and Coolidge, AZ facility starts production faster in 2022. 2) Less dilution or debt needed due to finding a funding partner for hydrogen station rollout. 3) Faster gross margin profitability after the start of production. 4) Commercial launch of the Badger pickup through a partner, highlighted by analysts at Cowen.

Downside: 1) Ramp-up of production in Ulm, Germany is not successful. 2) Greater dilution is needed for funding needs of stations and lower output from Germany and Arizona. 3) Elongated period of negative gross margins in production.

Check out FX Empire’s earnings calendar