If we learned anything from Rivian Automotive earnings and the reaction of the stock, it’s that the company’s production ramp-up isn’t happening fast enough for the market. Wall Street analysts have their concerns too, but they still like the stock—a lot. The Street is sticking with its Buy call, even though they are revisiting what shares are worth.
Rivian (ticker: RIVN) reported a wider loss from fewer sales than expected for the fourth quarter of 2021. Sales and earnings don’t matter for that period don’t matter all that much though. Rivian just started to deliver vehicles.
The outlook for 2022 is the bigger deal. Rivian told investors Thursday evening it plans to make about 25,000 vehicles this year. Wall Street was hoping for closer to 40,000. Shares are down 8.6% in premarket trading after that revelation. S&P 500 and Dow Jones Industrial Average futures are up 1.3% and 1.1%, respectively.
Management blamed supply-chain problems and parts shortages for the slower than expected production ramp. Piper Sandler analyst Alexander Potter is buying that explanation and kept his Buy rating on shares, noting that reservations and backlog still look strong. Rivian has roughly 83,000 truck reservations and an order for 100,000 delivery vans from Amazon.com (AMZN).
Potter did lower his price target to $130 from $148 a share though.
Wedbush analyst Dan Ives feels similarly about the quarter: It wasn’t great news, but he still likes the stock. “Since its IPO in late 2021 the Rivian story has been a bad episode out of the Twilight Zone for the Street,” wrote Ives in a Friday report.” Supply-chain problems, price increases, price cuts, weak guidance are all factors the stock is stuck in the Zone, says Ives.
“Is the story broken or fixable?” Ives asks, before answering that it’s the latter. He still rates share Buy, but cut his price target more than Potter, going to $60 from $130 a share.
The idea that Rivian will recover is the prevailing view on Wall Street. “We understand that [Rivian] needs to show progress on the production ramp and rebuild investor confidence,” wrote RBC analyst Joseph Spak in a Friday report. “This could take time and [the company] has a very ambitious plan …but we see a very favorable risk/reward at these levels for investors with patience.”
Spak’s price target came down to $100 from $116 a share. Mizuho analyst Vijay Rakesh cut his target to $100 from $145 a share. Both analysts still rate share Buy.
Overall, the average analyst price target came down to about $94 a share from $116. That drop cuts roughly $20 billion from Rivian’s valuation. But no one has downgraded the stock yet. Nearly 70% of analysts rate share Buy, above the 58% average for stocks in the S&P 500.
Coming into Friday trading, Rivian shares have been badly beaten up, down almost 60% year to date, and off almost 77% from a record high of almost $180 a share. Inflation, rising interest rates, and the Russian-Ukraine war have sapped some investor willingness to hold richly valued high-growth stocks.
Rivian qualifies as one of those. Shares still trade for roughly 6 times estimated 2022 sales.
Wall Street believes investors should chase Rivian shares as they drop. Time will tell if that is the right call.
Write to Al Root at [email protected]
