- I am of the view that Rivian’s actual 2023 financial performance should exceed the market’s expectations, taking into account key metrics and relevant company disclosures.
- My price target of $25.10 implies that RIVN’s shares could potentially go up by +32% this year.
- I upgrade my rating for Rivian to a Buy considering its upside potential, even though I don’t expect the stock to recover to the $50 mark in 2023.
My investment rating for Rivian Automotive, Inc.’s (NASDAQ:RIVN) shares is a Buy.
With my prior September 20, 2022 article for RIVN, I wrote about the new joint venture between Rivian and Mercedes-Benz Group AG (OTCPK:MBGAF) (OTCPK:MBGYY). In the current write-up, I turn my attention to Rivian’s stock price outlook.
In my view, RIVN’s shares can rise by as much as +32% to reach $25.10 before the current year ends, as it surprises the market in a positive way with stronger than expected revenue growth and narrower losses. It would be too optimistic to expect Rivian’s stock price to go back to the $50 price level in the short term, but RIVN still offers substantial upside based on a comparison of its current share price and my price target for the stock. As such, I raise my rating for RIVN from a Hold previously to a Buy now.
Is Rivian In Financial Trouble?
RIVN’s last done stock price as of February 22, 2023 was $19.02. In contrast, Rivian’s shares were trading above $50 roughly a year ago; RIVN’s stock closed at $50.24 at the end of the March 31, 2022 trading day. In other words, Rivian’s share price had dropped by approximately -62% in the past 11 months. In general, unprofitable companies boasting strong top line growth have suffered from a significant valuation de-rating in recent times as interest rates rose, and Rivian was no exception. But RIVN’s financial situation was also a key reason for the company’s poor stock price performance.
Rivian disclosed in its Q3 2022 shareholder letter that the company had around $14 billion of cash and cash equivalents on its books as of September 30, 2022. According to the Wall Street analysts’ consensus estimates obtained from S&P Capital IQ, RIVN’s projected free cash flow for FY 2023, FY 2024, and FY 2025 are -$6.5 billion, -$4.8 billion, and -$3.5 billion, respectively. The sell-side’s free cash flow forecasts are consistent with Rivian’s comments at its Q3 2022 earnings briefing emphasizing that the company has the “ability to fund operations with cash on hand through 2025.
In a nutshell, RIVN isn’t in financial trouble now. But it is clear that Rivian will have to eventually raise fresh capital in time to come (which partly explains RIVN’s poor share price performance and valuation discount), if the company wants to stay out of financial trouble.
At the company’s Q3 2022 results call, RIVN stressed that its current guidance (cash sufficient to last till 2025) doesn’t take into account capital required for “the large-scale manufacturing build-out of our (battery) cells” and the “build-out of our R2 platform (at the new Georgia plant).” This means that it is highly probable that Rivian will engage in new equity financing in 2024 or 2025 to fund its future growth plans.
RIVN Stock Key Metrics
Recent metrics relating to Rivian are pretty encouraging and bode well for the company’s near-term share price outlook.
Firstly, RIVN is reported to have plans to cut the company’s “headcount by 6%”, as highlighted in a February 1, 2023 Seeking Alpha News article. Cost optimization measures like these will help Rivian to meet the company’s cash burn guidance (as highlighted in preceding section), and its long-term profitability goals (25% gross profit margin and 10% free cash flow margin as outlined at the recent quarterly earnings call).
Secondly, Rivian’s actual vehicle production for last year turned out to be 24,337 units, which was just -2.6% below the company’s 25,000 units guidance. This implies that RIVN is executing well in relation to its manufacturing operations, and it is likely that supply chain headwinds should have eased to a large extent.
Thirdly, Ford’s (F) equity interest in RIVN has decreased from about 9.49% in late-2022 to a mere 1.15% now, as reported by Seeking Alpha News on February 10, 2023. As such, it is reasonable to assume that selling pressure relating to F’s disposal of Rivian shares should abate going forward.
What Are Recent Analyst Price Targets?
I noted in the previous section of the article that Rivian’s stock price outlook is decent considering recent metrics, and my positive view of RIVN is aligned with that of the Wall Street analysts’ target prices.
The mean sell-side price target for RIVN is $38.35, which implies that Rivian’s shares could potentially double from current price levels ($19.02 as of February 22, 2023). Even the most pessimistic Wall Street analyst thinks that RIVN’s shares don’t have much room to fall further, as the lowest price target for Rivian is $19.00. On the other hand, the most optimistic sell-side analyst is of the view that Rivian’s shares are worth $63.00, which potentially translates into a capital appreciation of +232%.
In the next section, I touch on my expectations for Rivian’ future stock price performance.
Can Rivian Stock Recover To $50 In 2023?
As I mentioned in an earlier section of this article, RIVN’s stock did trade above $50 a year ago. My opinion is that it would be a stretch for Rivian’s shares to return to the $50 level in the current year. But I expect Rivian’s stock to perform reasonably well this year, which will justify a Buy rating.
RIVN’s actual losses for 2023 should be narrower than what the market expects, which should drive a positive re-rating of its share price and valuations. Rivian revealed at its Q3 2022 earnings call that it expects to “introduce the Enduro motor (its own self-developed electric motor) and our first LFP (lithium ferrophosphate) battery pack into the commercial van line” this year, and this will contribute to a meaningful reduction in expenses thanks to technology-driven efficiency improvements. Moreover, Rivian’s profitability should also benefit from positive operating leverage, as its revenue recovers in tandem with the easing of supply chain headwinds.
My target price for Rivian is $25.10 which is equivalent to an upside of +32%, and this is based on a 1.0 times forward Enterprise Value-to-Revenue multiple applied to the consensus fiscal 2027 top line of $33 billion and using a discount rate of 17%.
Is RIVN Stock A Buy, Sell, or Hold?
I have RIVN’s stock rated as a Buy. A share price appreciation potential of +32% as per my price target of $25.10 is sufficient to warrant a Buy rating for Rivian. I expect better than expected financial results for the company in the quarters ahead to act as the re-rating catalyst for its shares.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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