Stocks’ Details

Equillium, Inc.

Closed the Offering for 5 Million Shares: Equillium, Inc. (NASDAQ: EQ) is a clinical-stage biotechnology company, focused on developing products for autoimmune and inflammatory disorders. The company recently announced the closing of its underwritten public offering of 5 million shares of common stock at an offer price of $7.00 per share, raising gross proceeds of around $35 million. These proceeds will primarily be used to fund the continued development of current and any future product candidates in the company’s pipeline. Further, the proceeds will be used to fund potential acquisition of new products, and for working capital, capital expenditures and general corporate purposes.

June 2020 Quarter Highlights: In the June 2020 quarter, the company’s research and development expenses stood at ~$3.9 million, down by ~$0.4 million on pcp, due to lower clinical development expense driven by the higher startup costs incurred for the EQUIP trial in the second quarter of 2019 as well as the pausing of that study during Q2 2020 due to the COVID-19 pandemic. During the quarter, the company reported positive interim data from the Phase 1b portion of its EQUATE clinical trial of itolizumab in patients with acute graft-versus-host-disease (aGVHD). The company incurred a net loss of $6.5 million in the June quarter. At the end of the quarter, the company had cash, cash equivalents and short-term investments of $42.6 million.

Q2 FY20 Results (Source: Company Reports)

What to Expect: Going forward, the company intends to initiate a global trial of itolizumab in hospitalized patients with COVID-19. Further, the company is advancing its ongoing EQUATE, EQUIP and EQUALISE trials.

Key Risks: The company is exposed to the risks and uncertainties of COVID-19 pandemic as it could impact the company’s business, including its clinical trials, supply chain and its business development activities. The company is also exposed to risks related to any delays in the commencement or completion of its ongoing and future clinical trials as it could result in increased costs, delay or limit the company’s ability to generate revenue and adversely affect its commercial prospects.

Stock Recommendation: The stock of EQ has provided a return of 68.04% in the last three months. However, the stock has corrected by 38.9% in the last one month. On the technical analysis front, the stock has a support level of ~$3.29 and resistance level of ~$7.84. For the March 2020 quarter, the company’s current ratio stood at 13.43x, higher than the industry median of 7.88x, demonstrating that the company is well-equipped to pay its short-term obligations. Although the company’s stock price has witnessed significant uplift in the last three months, recently received positive interim data from the Phase 1b portion of its EQUATE clinical trial, recently closed underwritten public offering which strengthened the cash position, and the company’s plans to initiate a global trial of itolizumab in hospitalized patients with COVID-19 augur well for future growth of the business. Hence, in the light of the above-mentioned facts, we give a “Speculative Buy” recommendation on the stock at the closing price of $5.89, down by 3.13% on 31^st August 2020.

Workhorse Group, Inc.

Strategic Agreements with Hitachi: Workhorse Group, Inc. (NASDAQ: WKHS) is a technology company, involved in the designing and building of high performance, battery-electric vehicles including trucks and aircraft. On 31 August 2020, the company announced that it has entered into strategic agreements with Hitachi America, Ltd. and Hitachi Capital America Corp. As per the terms of the agreements, Hitachi America and other Hitachi Group companies will support the company’s increased production requirements by providing an operational assessment of the company’s manufacturing, operational and supply chain capabilities.

June 2020 Quarter Highlights: During the June 2020 quarter, the company recorded sales of $92,000 compared to $5,500 in pcp. Due to the increase in the engineering, staffing and consulting expenses, the research and development expenses stood at $1.6 million in June quarter, compared to $1.2 million in pcp. For the quarter, the company reported a net loss of $131.33 million. One of the major highlights of the quarter was the delivery of C-series electric step vans to Ryder System, Inc. and Electric Vehicle Fleet Solutions. As on 30^th June 2020, the company had cash and cash equivalents of $26.197 million.

June Quarter Results (Source: Company Reports)

Focus Areas: The company is currently focusing on maximizing its efficiency and output as it intends to ramp up production throughout the remainder of 2020 to meet its ambitious delivery campaign goals. The company remains on track to deliver 300-400 vehicles in 2020. 

Key Risks: The company is exposed to the risks related to health epidemics such as the global COVID-19 pandemic, which could impact its operations, financial position, and cash flows. The company is also exposed to risks arising from the shifts in technology, global and local business conditions.

Stock Recommendation: The stock has seen momentum since the month of June and made a 52-week high of $22.90 on 02 July 2020. On the technical analysis front, the stock has a support level of ~$16.11 and resistance level of ~$19.44. The run-up in the stock price can be attributed to various developments that include inclusion in Russell 3000 index, performance of heavyweight- TESLA in EV industry, securing a fund amounting to $70 million from an institutional investor, etc.  Further catalysts such as extension/revival of the contract with USPS, probable listing of EV start-up Lordstown Motors, etc., are likely to support this momentum. Although the stock price has seen a good amount of appreciation in the last 3 and 6 months, considering the recent agreement with Hitachi and bright prospects for Electric Vehicle industry, we are of the view that the stock might see further upside in the coming times. However, on the face of losses in the latest quarter amid COVID-19 and recent price movements, the stock carries high risk-reward profile. Hence, in the light of above-mentioned facts, we give a “Speculative Buy” recommendation on the stock at the closing price of $18.11, up 10.49% on 31 August 2020.

Pedevco Corp 

Acquisition Offer Rejected by Avalon: Pedevco Corp (NYSE: PED) is an energy company engaged in the acquisition and development of strategic, high growth energy projects in the United States. The company recently delivered an open letter to Avalon Energy, LLC regarding a potential acquisition of all the common units of the Trust held by Avalon, the working interests underlying the overriding royalty interests owned by the Trust, and operatorship thereof. On 27 August 2020, Avalon Energy informed that it has decided to reject the offer as Avalon E&P and its subsidiaries, including Avalon Energy, had already entered into an agreement with Montare Resources I, LLC regarding Avalon's ownership of common units of the Trust, 100% of the working interests underlying the overriding royalty interests owned by the Trust, and all other related assets.

June 2020 Quarter Update: During the June 2020 quarter, the company reported total revenue of $656k, compared to the revenue of $4.07 million in pcp. The company incurred a net loss of $2.74 million in the June quarter. At the end of the June quarter, the net cash provided by operating activities stood at $87 million. Due to the COVID-19 outbreak, and the recent sharp decline in oil prices, the company temporarily paused operations at its producing wells in its Permian Basin Asset and D-J Basin Asset in order to preserve the its oil and gas reserves for production during a more favorable oil price environment. The company recently reactivated over 90% of its operated wells, following the partial recovery in oil prices.

June 2020 Quarter Update (Source: Company Reports)

Key Risks: The company is exposed to the risks and uncertainties of COVID-19 pandemic as it could adversely impact its business and financial condition. The company is also exposed to risks related to the declines in oil and, NGL and natural gas prices, as it could impact the company’s business, financial condition, and its ability to meet its capital expenditure obligations.

Plans in Pipeline: Going forward, the company intends to optimize its existing assets and opportunistically seek additional acreage proximate to its currently held core acreage, as well as other attractive onshore U.S. oil and gas assets that fit its acquisition criteria. The company plans to grow production, cash flow and reserves by developing its operated drilling inventory and participating opportunistically in non-operated projects.

Stock Recommendation: The stock of PED has provided a return of 80.77% in the last three months and in the last month alone it rose by 53.34%. On a TTM basis, the stock has an EV to Sales multiple of 7.9x, lower than the industry median (Oil and Gas) of 2.4x. On a TTM basis, the stock has a Price to Book Value multiple of 1.0x, higher than the industry median of 0.5x, demonstrating that the stock might be overvalued at current levels. Considering the rejection of the company’s acquisition offer by Avalon Energy, LLC; the impact of the recent sharp decline in oil prices on the company’s June Quarter results; and uncertainties surrounding the COVID-19 pandemic, we suggest investors to avoid the stock at the closing price of $1.32, down by 13.16% on 31 August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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