Nikola Corporation

NKLA Details

A Look at NKLA’s 2QFY20 Results: Nikola Corporation (NASDAQ: NKLA) is engaged in designing and manufacturing of hydrogen-electric & battery-electric automobiles, energy storage systems, and hydrogen fueling station power supplies. During the second quarter of FY20, the company reported a loss from operation of $86.6 million as compared to the loss of $17.2 million reported in the year-ago period. Adjusted EBITDA loss during the quarter came in at $46.9 million, as compared to a loss of $15.5 million reported in 2QFY19. Research and development expenditure stood at $42.5 million, up from $ 11.8 million reported in the year-ago period. The company exited the quarter with a cash balance of $698 million. Net cash used for operating activities stood at $45.8 million for the six-month ended June 30, 2020.

2QFY20 Key Financial Highlight (Source: Company Reports)

NKLA to bring 1Mn Facility to Arizona: Recently, the company stated that after an official ceremony on its ~430-acre parcel, the company moved one step closer to achieve 1 million-square-foot manufacturing facility to Coolidge, Ariz. The Arizona facility is likely to achieve greater than 1,800 new full-time positions and result in ~$600 million in new capital expenditures.

NKLA Appoints Two Industry Veterans:  On 10 June, 2020, the company stated that it has added two industry veterans to its executive team namely Pablo Koziner, who will lead as a president of NKLA Energy and Mark Duchesne, who will be NKLA’s global head of manufacturing.

NKLA Signs Deal with Nel ASA: In another update, Nikola signed a procurement order with Nel ASA, for 85-megawatt alkaline electrolyzers assisting 5 of the world’s top 8 ton per day hydrogen fueling stations. Collectively, these electrolyzers are expected to produce more than 40,000 kgs of hydrogen per day, with an order value of more than USD $30 million.

NKLA and VectoIQ Complete Business Combination: On June 3, 2020, the company completed its previously announced business combination with VectoIQ Acquisition Corp. This move further strengthens Nikola’s position as a top leader in zero-emission infrastructure & transportation solutions. Nikola raised more than $700 million through the business combination and PIPE. The deal proceeds are likely to aid Nikola to solidify on its state-of-the-art production facility in Coolidge and boost its launch of hydrogen station infrastructure. Notably, Nikola’s pre-orders represent more than $10 billion in potential revenue. Further, with the roll-out of the company’s Nikola Tre Class 8 BEV, NKLA is likely to garner revenues by 2021. The company also expects to unveil Nikola Two Class 8 FCEV at the beginning of 2023.

Key Risks: Being in an early stage, the newly formed entity has its own share of difficulties, one of which is limited operational history along with the absence of any immediate revenue generation capacity. Further, cash management is also a challenging task for this newly formed business. Also, soaring technology costs to develop advanced vehicles are likely to weigh on margins. 

Stock Recommendation: The stock of NKLA closed at $36.72 with a market capitalization of ~$13.9 billion. The stock made a 52-week low and high of $10.16 and $93.99, respectively, and is currently trading at the lower band of the range. The stock of the company went up 261.06% in the past one-year period and 147.27 in the last three months. On the TTM basis, the stock is trading at a P/BV multiple of 58.4x, higher than the industry average of 1.4x. Considering the latest business combination, current trading levels, and limited financials, we suggest investors to wait for further information with regards to financial results, etc., and hence, suggest a watch view on the stock at the closing price of $36.72, up 1.16% as on 7 August 2020.

NKLA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Xerox Holdings Corporation

XRX Details

XRX Prices Senior Notes Offering: Xerox Holdings Corporation (NYSE: XRX) is a workplace technology company, which develops and incorporates software and hardware for large and small size organizations. On August 4, 2020, the company priced an offering of $550 million and $550 million aggregate principal amount due 2025 and 2028, respectively. The notes carry an interest rate of 5.000% and 5.500%, respectively. 

2QFY20 Key Highlights: During the quarter, the company reported revenues of $1,465 million, as compared to $2,263 million reported in the year-ago quarter. Gross margin came in at 38.5%, down from 39.1% reported in the year-ago quarter. Adjusted EPS was down from $0.79 per share to $0.15 per share in 2QFY20. The results were significantly impacted by the coronavirus led outbreak. As a percentage of revenues, selling, administrative and general expenses, increased from 22.8% to 29.1% during the quarter. Research, development, and engineering expenses as % of revenue stood at 5.2%, as compared to 3.9% reported in eth year-ago quarter. The company exited the quarter with a cash balance of $2.3 billion and long-term debt amounted to $2.27 billion.

2QY20 Key Highlights (Source: Company Reports) 

XRX Declares Dividend: On July 23, 2020, the company declared a quarterly cash dividend of 25 cents per share on Xerox Holdings Corporation Common Stock, payable on October 30, 2020. 

Xerox Unveils Connect Key: On July 15, 2020, XRX unveiled its latest Xerox AltaLink® C8100 and Xerox AltaLink B8100 Series multi-function printers (MFPs). The new releases provide a flexible work environment and assist companies to speed their digital transformation with access to the ConnectKey® ecosystem of applications. 

XRX launches Team Availability App: In another update, the company unveiled an application known as Team Availability App, that helps keep track of availability and location of remotely working employees. The latest launch proposes quick-to-deploy, and real-time solution, for management of flexible work environments amid COVID-19 led crisis.

What to Expect: For FY20, the company suspended its guidance due to the high level of economic uncertainty and coronavirus led disruption.

Risks: Weak equipment and post-sale revenues are expected to have hurt the top line, going forward. Further, higher restructuring costs along with lower revenues base are likely to weigh on the company’s performance. Also, stiff competition, leveraged balance sheet and COVID-19 led disruption ads to the woes.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of XRX closed at $16.76 with a market capitalization of $3.57 billion. The stock made a 52-week low and high of $14.22 and $39.47 and is currently trading at the lower band of the range. The stock has corrected by 3.29% in the last three-months but went up 10.77% in the last one-month period. The company remains focused on robust innovation capabilities to expand its revenue trajectory by leveraging new and prevailing markets. Considering the aforesaid facts, we have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers like HP Inc (NYSE: HPQ), NetApp Inc (NASDAQ: NTAP), Hewlett Packard Enterprise Co (NYSE: HPE), to name few and arrived at a target price of a lower double-digit upside (in % terms). Hence, we give a ‘Buy’ recommendation on the stock at the closing price of $16.76, up 2.51% as on 7 August 2020. 

XRX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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