Stock in Chinese electric-vehicle maker NIO is down a lot since the start of the year. But Wall Street still likes the stock—a lot.
Despite the underlying bullishness, though, investors should brace for a shift from some analysts after, and even before, the company reports earnings on Thursday.
Deutsche Bank’s Edison Yu shows why. Yu wrote a positive note on Monday previewing NIO (ticker: NIO) fourth-quarter earnings. The “tide may finally be turning,” wrote Yu. “While volumes have stagnated over the past few quarters due to operational bottlenecks, we think deliveries are on track to increase from [10,000 a month to 25,000] exiting the year which will shift the narrative away from supply constraints to product cycle.”
All auto makers are dealing with part shortages—a lack of semiconductors is the best known. NIO is no exception. Still, the company has managed to introduce new vehicles, including the ET7 and ET5 sedans, that have received rave reviews from top automotive magazines.
Yu rates shares Buy, but cut his target price to $50 a share from $70. The move simply reflects how the stock has been trading.
Coming into Monday trading, NIO shares were down about 34% year to date and down 62% from their July 52-week high of more than $55 a share—far worse than the 6% and 4% comparable year-to-date drops of the
Dow Jones Industrial Average
and far worse than EV leader
(TSLA). Shares of Tesla are down about 14% year to date and off about 27%. Nio stock has gained 2.8% in premarket trading Tuesday.
Rising interest rates and inflation have hurt all EV shares. A basket of metals that go into lithium-ion batteries, tracked by Barron’s, is up more than 60% year to date. That makes EVs more expensive—and pressures profit margins.
But the U.S.-listed Chinese EV names have been hurt by renewed fears about U.S. stock delisting as well. Chinese companies have to comply with Washington’s audit standards to keep their Wall Street listings. NIO and its peers appear to meet the requirements, but investors aren’t sure. Delisting, if it happens, is probably a couple of years away.
The new target price from Yu is about 140% above where the stock has traded of late—a big upside. He lowered his target price because target prices typically aren’t set way above where a stock trades. The average implied gain for stocks in the S&P 500, based on average target prices, is roughly 13%.
Analysts’ target prices are helpful, but they can tend to track whatever is going on in the market.
Overall, about 91% of analysts covering NIO stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P is about 58%. The average analyst target price is about $50, just like Yu’s.
Analysts project NIO will lose about 14 cents a share from $1.5 billion in sales. The company reported a 16 cent per share loss from $1 billion in sales in the fourth quarter of 2020.
The company’s numbers are due out Thursday after the close of trading.
Write to Al Root at [email protected]