Cowen downgrades Workhorse
According to Cowen, the 57% gain in the Workhorse Group this week is attributable to a “meme stock spike” rather than something else.
The electric vehicle’s stock spike comes as the so-called meme stocks have taken hold on Wall Street once again. If GameStop was the poster child of the Reddit-fueled rally earlier this year, this time around it’s AMC. The movie theater chain’s stock dipped 18% on Thursday, but it’s still up 96% for the week after nearly doubling during Wednesday’s trading session.
One indication that Workhorse is part of this group is its short interest. According to data from FactSet, 41% of its float is sold short. This means a very large portion of investors — typically institutional investors — are betting the stock will decline. Traders targeting heavily-shorted stocks has been a hallmark of the meme-stock rally. For AMC and Bed Bath & Beyond 21% and 31% of shares are sold short, according to FactSet. If these heavily shorted stocks rally, it can cause a so-called short squeeze where those betting against the stock are forced to buy it to cut their losses.
When downgrading Workhorse, Cowen kept all of its estimates the same, including its $13 target, which is 12% below where shares closed on Thursday.
Workhorse shares fell 9% on Friday. The stock has shed 32% this year even with the recent spikes.
Looking ahead, the firm said Workhorse has between nine and 12 months before competitive dynamics heat up. Ford and GM have outlined long-term electric vehicle development plans, while a host of start-ups are also emerging in the EV space.
“Competition is increasing with several well capitalized companies entering in to the electric van market for last mile delivery applications,” analysts led by Jeffrey Osborne said. “We look to the balance of FY21 to see management begin to execute on its production targets in earnest and leverage its first to market advantage.”
For Friday, a research firm called Wedbush boosted its twelve-month price target on AMC shares by $1.
The movie theater business sold more than 20 million shares in two separate offerings in the last week alone. AMC stated on Wednesday that investment firm Mudrick Capital had purchased 8.5 million shares for more than $230 million. The company then announced on Thursday that it had sold an additional 11.55 million shares for more than $587 million.
On Thursday night, AMC CEO Adam Aron, dubbed “Silverback” by retail traders rallying behind the meme stock, appeared on YouTube to make the case for issuing 25 million more shares.
Wedbush believes that this cash infusion will let AMC to pay off its debt faster, expand its international operations, and purchase newly accessible domestic movie theaters that would have been destroyed by the Covid epidemic.
Although more shares often decrease the value of existing stock for existing shareholders, Wedbush believes that “AMC’s enhanced cash balance offsets its larger share count.”
The new price objective comes after the meme stock closed Thursday at $51.34 after a volatile trading session. AMC shares more than quadrupled in early trade on Wednesday before ending at an all-time high of $62.55.
Despite being bullish about the pent-up demand for movie theater experiences post-pandemic, Wedbush says the present price of AMC shares is “out of sync with the company’s fundamentals.”
Other Wall Street experts concur that the stock is currently expensive in terms of fundamentals. According to FactSet data, the average 12-month price objective for AMC shares is $5.25.
The stock is still rated as a hold by Wedbush.
“We anticipate further strong volatility in AMC shares, driven by trade momentum unrelated to AMC’s fundamentals,” Reese said. “As a result, we do not propose purchasing AMC shares here.”
Bank of America
Due to the wild price fluctuations in meme stocks favored by Reddit traders, Wall Street has for some time found themselves perplexed. As a result, the Bank of America has chosen to stop trying to make sense of some of these trades.
During the initial speculative retail trading flare-up early this year, the stocks became two of the principal actors, and they’ve recently increased in volatility. Previously, the company rated GameStop underperform and gave an investment rating to Bed, Bath & Beyond.
“We believe that the rapid appreciation in BBBY’s share is being driven by another surge in interest and trading led by retail investors. … As a result, we move to No Rating as we believe shares of BBBY are no longer trading on fundamentals,” Nagle said in a note about the home goods retailer. “Investors should no longer rely upon our previous investment opinion or price objective.”
Since May 24, shares of GameStop have gained more than 40%, with five trading sessions delivering moves of more than 10% in either direction.
“During this period, GME did not report any material updates and the only news on GME’s operations were very high level media reports that the company was working on a non-fungible token (NFT) platform,” Bank of America said.
Bed Bath & Beyond, meanwhile, has seen even more dramatic swings recently. The stock rose 62% on Wednesday and then fell almost 28% on Thursday.
“While not quite as extreme as GME, BBBY has seen a large sequential increase in mentions on retail investor forums and trading volumes surged to 110mn shares (nearly 100% of the float) on 6/2/21,” Bank of America said.
Nagle said he still believes there is a long-term bull case for Bed Bath & Beyond, but the stock no longer appears tethered to that potential.
Bank of America analysts believe that while Wells Fargo shares are off their highs, the bank’s new leadership team is trying to identify new income sources and make concessions to regulators, which might increase the bank’s price over the long term.
“We believe that WFC still has the ‘bones’ of a world-class financial institution, anchored by the country’s third-largest deposit base. Furthermore, unlike its higher-performing mega-cap peers, we believe WFC still has multiple opportunities to improve productivity (aside from regulatory-related costs) and build product scale,” according to the note.
According to Bank of America, the bank has seen significant turnover among its executives and is now poised for internal improvements as well as the potential relaxation of the additional regulations.
“While partial resolution of regulatory issues (notably, the lifting of the asset cap) and some success in cost-cutting efforts are likely priced in, here’s what isn’t, in our opinion: WFC has both cyclical and self-help catalysts, whereas all of its peers have one or the other,” according to the note.
The firm raised its price target for the stock from $47 to $60 per share. This represents a 29 percent increase.