Nikola's First Rating

The market's hottest stock over the past two weeks has been that of electric and fuel-cell truck pioneer Nikola Motors. Since announcing it would go public by merging with a special special- purpose acquisition company, or SPAC, in early March, its shares have soared 457%. Since that deal closed two weeks ago, they've gained 89%.

Nikola's stock closed at about $64 today, giving it a market value of over $23 billion. Not bad for a company with no revenues or profits to speak of. Its valuation is about 85 times estimated earnings for 2021. 

But until today, the company had no Wall Street analyst following: Cowen's Jeffrey Osborne launched coverage of the stock, and sees more room for it to rise. He rates the shares the equivalent of Buy with a $79 price target, or close to 25% upside.

“We see Nikola as an intriguing investment opportunity,” Osborne wrote today. “Leveraging one truck platform, two powertrain options, and three business segments, with optionality in powersports, pickups, and AVs.”

Barron's Al Root broke that down:

Nikola has a lot going on. The truck platform Osborne speaks of is a heavy-duty vehicle—the kind hauling freight on highways. The two powertrains are batteries and hydrogen fuel cells, while the three business segments are battery-powered short-haul heavy-duty trucks, fuel-cell-powered long-haul heavy-duty trucks and hydrogen filling stations.

Hydrogen fuel cells run on hydrogen gas, so Nikola’s technology emits no greenhouse gases. The company is also planning a light truck as well as other battery- powered vehicles, to be built by manufacturing partners.

The crux of the bull case on Nikola is that its fuel-cell-powered trucks will eventually be cheaper to own and operate than diesel-powered trucks. That could motivate price-conscious fleet owners to adopt the technology and drive sales to Nikola.

There's a lot riding on that thesis. Nikola's market value is much greater than established car and truck makers like Ford Motor. At Osborne's price target, it would be worth more than diesel-engine manufacturer Cummins as well.

Read the rest of Al's report here.