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XPeng Stock Could Hit $43, Says Analyst
XPeng (XPEV) shareholders have had a rough 2021, as Mr. Market chopped off 36% of the company’s stock price. However, Deutsche Bank analyst Edison Yu urges investors to “hold the line again” on XPeng stock, in anticipation of a second-half-of-the-year “inflection” that will cause XPeng’s stock to “quickly recover.” What makes Yu so confident that such an inflection will happen? As the analyst explained, “XPeng is poised to see a large increase in vehicle deliveries in the 2H of the year, driven by the [LFP lithium iron phosphate] battery rollout, mid-cycle G3 [electric SUV] refresh, and deliveries of P5 [compact electric sedan] in 4Q.” The electric vehicle-maker delivered an “earnings beat” when it reported its Q1 2021 results on Thursday last week, increasing vehicle deliveries 487% (13,340 units), growing revenues 616% ($450.4 million), reversing last year’s negative gross profit margin to replace it with an 11.2% gross margin in Q1 2021, and losing less money on the bottom line ($0.14 per share) than forecast. As the analyst explained, XPeng’s deliveries in Q1 were “slightly” above consensus estimates, as were gross margins earned on those cars — 11.2%, versus an analyst consensus closer to 9%. Looking ahead, Yu predicts that gross profit margins will continue inching up as the year progresses, to average about 12% for the year. Unit sales will also continue to grow, with a best guess at 16,000 units delivered in Q2 2021 (at lower margins), and 70,000 units for the year (at the stated 12%). As with other automakers, XPeng’s production numbers have been impacted by the well-publicized shortages of semiconductors for automobiles. On the one hand, that’s certainly a short-term negative for the stock. On the other hand, though, Yu argues that the semi shortages are artificially depressing sales, and that “underlying demand” for XPeng’s electric cars “is actually much stronger” than current sales indicate, as implied by management statements that “its order book is at the highest levels ever, even when excluding pre-order reservations for the P5” sedan. Yu anticipates that this demand strength will become apparent once Q2 is in the rearview mirror, resulting in his raised sales forecast. What’s perhaps most curious, though, is that while Yu is increasing his estimate of how many cars XPeng will sell this year in response to the posited demand, he hasn’t changed his estimates of outlying year sales at all. As before, Yu predicts unit sales of 125,000 in 2022, and 190,000 in unit sales in 2023. Granted, those are impressive numbers, implying 79% year over year growth next year, and 52% growth the year after that. But if sales are really being depressed artificially, and if demand is greater than apparent, such that Yu sees current year sales “inflecting” higher, it’s curious that the analyst doesn’t see this boom extending out past any longer than the next seven months such that those numbers, too, would rise. Be that as it may, at least Yu is leaving his price target unchanged to match the unchanged future-year sales projections: $43 a share for XPeng — about 57% higher than where the shares trade today. (To watch Yu’s track record, click here) Wall Street’s analysts can be a contentious lot – but when they agree on a stock, it’s a positive sign for investors to take note. That’s the case here, as all of the recent reviews on XPEV are Buys, making the consensus rating a unanimous Strong Buy. The analysts have given an average price target of $47.85, indicating ~75% upside from the current share price of $27.32. (See XPEV stock analysis on TipRanks) To find good ideas for EV stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
