Electric-truck startup Rivian Automotive reports fourth-quarter earnings in about a week. One analyst cut his price target on the stock ahead of the report because there are too many headwinds facing the company right now.
Wells Fargo analyst Colin Langan did the cutting, reducing his price target to $70 a share from $110. He kept his Hold rating on Rivian (ticker: RIVN) stock.
“We are bullish on the products and brand strategy; however, we see near-term headwinds,” wrote the analyst in a report Tuesday. His list of headwinds is long and includes rising interest rates, increased EV competition, the initial public offering stock lock-up ending in May, and first-quarter delivery expectations, that may be too high.
Rivian is ramping up production of its electric pickup trucks. Soon-to-be-released earnings will focus on how the ramp is going and how many trucks the company will deliver early in 2022. Langan believes the company is on pace to deliver roughly 2,300 trucks in the first quarter of the year. The Wall Street consensus is closer to 4,000 trucks.
As for competition, Ford Motor (ticker: F) is about to ship its all-electric F-150 soon. That directly competes with Rivian’s pickup, the R1T. Early in 2023, truck buyers should also have an electric Chevy Silverado from General Motors (GM) and the Cybertruck from Tesla (TSLA) to choose from.
Competition is a company-specific factor for investors to consider. Interest rates and IPO lockups are market factors facing the stock.
As for rates, growth companies, such as Rivian, generate most of their earnings and cash flow far in the future. Higher interest rates cut the value of that future money when discounting it back into today’s dollars. Langan said Wells Fargo economists expect short-term interest rates to rise by 1.75% over the coming 21 months. That’s “a drag” on his Rivian valuation.
The rate problem will be one investors will have to deal with for a while. The IPO lockup expiration overhang should pass more quickly. Stock held by early investors in a newly public company typically can’t be sold for 180 days following an IPO. Rivian’s lockup expires around May 8, 2022. That’s 180 days after the company’s IPO on Nov. 9, 2021.
Both Amazon.com (AMZN) and Ford hold large stakes in Rivian and investors will be watching to see what that pair does when the lockup expires.
Langan rates shares Hold, but Rivian remains a relatively popular stock on Wall Street. Almost 70% of the analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
The average analyst price target is $130 a share, up more than 90% from recent levels, although those price targets were mostly set shortly after the IPO when the stock was performing better.
Coming into Tuesday trading, Rivian shares have fallen about 35% year to date and are down about 62% from their 52-week high of almost $180 a share.
Rivian shares were down about 1.6% in premarket trading following the target cut. S&P 500 and Dow Jones Industrial Average futures were both off about 0.6%.
Write to Al Root at [email protected]
