Nikola (NKLA) Seeks to Raise Capital, Romeo Buyout on Track

Shares of Nikola Corp NKLA declined 9.4% yesterday after it stated its intention to raise capital via a $400 million stock offering. The Arizona-based electric truck maker plans to issue up to $400 million in new stock in an “at-the-market” offering. On its second-quarter earnings call, Nikola had indicated that it was likely to raise additional funds as it looks to ramp up production amid escalating costs. NKLA had cash and cash equivalents of $441.7 million as of Jun 30, 2022.

The company is battling production bottlenecks, commodity cost inflation and logistic challenges, which are worsening its liquidity profile, thereby inducing it to seek cash infusion. Also, NKLA targets to deliver 300-500 production Tre BEV Trucks this year. With the aim to boost production amid rising battery costs, when it is already reeling under cash crunch and supply chain snarls (worsened by the Russia-Ukraine war), it doesn’t come as a surprise that the company had to resort to stock sale to raise capital.

As it moves ahead with its $144 million buyout of battery supplier Romeo Power, Nikola also announced yesterday that it has begun the exchange offer to buy all outstanding shares of Romeo Power.

On Aug 1, the company had announced its decision to acquire Romeo in an all-stock deal. Per the agreement, Romeo shareholders will get 0.1186 of a share of Nikola for each Romeo share, marking around a 34% premium to Romeo’s closing share price as of Jul 29. Upon the successful completion of the offer, a newly formed subsidiary of Nikola will be merged into Romeo. Subject to customary closing conditions and shareholders’ approval, the deal is set for closure during the fourth quarter of 2022.

In another development, Nikola yesterday announced key leadership changes that have been made effective immediately. Pablo Koziner has been made the president of the company’s Commercial division and Carey Mendes has been named president of the Energy unit. The presidents of both divisions are expected to report to Nikola’s president Michael Lohscheller, who will also become the CEO on Jan 1, 2023.

Zacks Rank & Key Picks

Nikola currently carries a Zacks Rank #3 (Hold). The company incurred second-quarter 2022 adjusted loss of 25 cents a share, narrower than the Zacks Consensus Estimate of a loss of 27 cents. NKLA generated $18 million in revenues in the quarter under review, ahead of the consensus mark of $17 million.

A few better-ranked players in the auto space include Tesla TSLA, Polaris PII and Blue Bird Corp BLBD. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tesla is the market leader in battery-powered electric car sales in the United States, with roughly 70% market share. For the current year, the EV titan is projected to generate $85 billion in revenues, implying a double-digit uptick of nearly 58% year over year. In FY23, the top line is forecast to rise by an additional 41%. The Zacks Consensus Estimate for FY22 earnings per share is pegged at $3.73, suggesting year-over-year growth of 65%. The bottom line is projected to increase another additional 35.5% in FY23.

Medina-based Polaris offers off-road vehicles, including all-terrain vehicles and side-by-side vehicles, among others. For the current year, PII is projected to generate $8.55 billion in revenues, implying an uptick of nearly 4.2% year over year. In FY23, the top line is forecast to rise by an additional 2.7%. The Zacks Consensus Estimate for FY22 earnings per share is pegged at $10.12, suggesting year-over-year growth of 10.8%. The bottom line is projected to increase another additional 6.8% in FY23.

Cambridge-based Blue Bird is engaged in designing, engineering, manufacturing and selling school buses and related parts. In fiscal 2022, BLBD is projected to generate $775 million in revenues, implying an uptick of nearly 4.2% year over year. In fiscal 2023, the top line is forecast to rise by an additional 34.8%. The Zacks Consensus Estimate for fiscal 2023 earnings per share is pegged at 75 cents a share, suggesting year-over-year growth of 239%.

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