What happened
Shares of Nicholas (NASDAQ: NKLA) climbed 8% on Monday morning following positive comments about the company from analysts at JP Morgan. The year ends on a sour note for Nikola, but some on Wall Street expect more positive news flow around the company in 2021.
So what
Nikola has packed a lot in 2020. The electric truck start-up made a well-received public debut earlier this year, but the stock has slumped in recent months on accusations of overhyping its products and following of the resignation of founder and former executive chairman Trevor Milton.
Image source: Nikola.
An important partnership with General Motors was reduced, and last week an agreement with Republic Services to develop green garbage trucks has ended.
In a note Monday, JP Morgan’s Paul Coster lowered his price target on Nikola to $35 from $40 on execution risk related to what he calls a “tarnished mark.” But he retained his overweight rating on the stock, saying he was bullish on the company’s ability to turn a corner in 2021.
Nikola’s news should be “less dramatic” and generally more positive in the coming months, according to Coster. He thinks Nikola is well placed to continue the development of his heavy truck.
Now what
Coster’s 2021 year-end price target of $35 is 143% higher than where the stock is trading at the time of this writing, likely getting a lot of investor attention on Monday.
The analyst is correct that if you are able to weed out drama and setbacks, there is real potential in the underlying business. There’s also a lot of execution risk, and a lot could go wrong as Nikola tries to compete with existing truck manufacturers and other green technologies.
The shard is off Nikola, and it may never be the growth story some investors hoped for when it went public. But the note if nothing else is a reminder that it’s too early to abandon the business altogether.
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