Workhorse Group (NASDAQ:WKHS) is fundamentally in the same place it was when I last wrote about it. It still reports nearly non-existent sales figures, and yet analysts are keen on WKHS stock.
Nothing has changed from a financial perspective. Workhorse did move on news regarding Lordstown Motors but that shouldn’t affect the bottom line much.
Investors who’ve been following Workhorse for some time will remember its W-15 pickup truck. Workhorse decided to discontinue plans to produce it recently. The company sold the rights to the W-15 technology which will be used in Lordstown’s Endurance truck.
Workhorse gained two important things from this deal. First, it gained 2 years of non-dilutable equity stake in Lordstown Motors. Second, Workhorse will receive a royalty fee for each Lordstown truck which is delivered.
The most likely catalyst that could send WKHS stock skyward is a contract with the U.S. Postal Service. It is starting to look like the potential for such movement might be materializing.
A Closer Look at WKHS Stock
Workhorse reported $84,000 in sales at the end of Q1 ‘20. The company’s Q2 revenues moved to $92,000, which is nearly nothing of course.
The note here is that investors don’t have any fundamental reason to go out purchase Workhorse stock compared to Q1. Yet, it seems like there is news afoot which improves Workhorse’s chances of winning the USPS fleet contract. Therefore, a case is beginning to build for a WKHS stock purchase.
Mahindra Automotive North America (OtherOTC:MAHMF) dropped out of the bidding for the contract after I last wrote about the bid process. The USPS will now choose between a Karsan/Morgan Olson team, Workhorse, and an Oshkosh (NYSE:OSK)/Ford (NYSE:F) team.
Therefore, Workhorse’s chances just increased, at least nominally. This is not the first time the USPS has considered upping its percentage of electric vehicles in its fleet. However, Workhorse stands to gain a lot as this time is essentially a complete fleet overhaul.
Further, Workhorse has been working out the kinks in its drone delivery van combination. The USPS can only see this as a positive. Overall, Workhorse is a step closer to reaping some of the contract and markets should respond in kind.
Is USPS Going All-Electric?
It would seem unlikely that the USPS will allocate 100% of the contract to Workhorse. The risks seem too high. Investors can at least make some educated guesses regarding a potential contract allocation based on drivetrain configurations. The three remaining finalists are not all electric vehicles.
Oshkosh/Ford plans to manufacture an internal combustion vehicle based on the Ford Transit van. Karman/Morgan Olson’s vehicle is a plug-in hybrid. The Workhorse vehicle is electric.
Markets might be surprised if any of the three finalists are completely frozen out and receive none of the final contract. The USPS will be purchasing roughly 180,000 vehicles over 5 to 7 years at a cost of $6.3 billion.
A Note on the Contract
I’d guess that Workhorse won’t be defined by how much of the initial USPS contract it receives. Rather, I think Workhorse stock will really benefit if and when its vans prove themselves for the USPS.
In any case, the USPS will be making a decision by the end of the year. Further, the RFP for the contract makes clear that this is going to be staggered in tranches over several years.
The USPS’ $6 billion award is going to distributed over a 5 or 6 year period. That is, this is not a winner take all situation. This contract is a chance for each finalist to prove its vehicles and then garner more of that $6 billion over time.
Verdict
The USPS award is going to be one of, if not the most important driver of Workhorse’s near-term progress. The more I read about the company, the more certain I feel that they will be able to turn it into a win. Perhaps now is the time to buy WKHS stock. Once the award is announced, stock prices will move. I’m starting to believe they have to at least get some portion of the award, so they’re bound to jump. I also feel that being the only all-electric candidate indicates they may get a big portion. The onus to meet expectations and prove their mettle is on them when they do. When I last wrote about Workhorse, I was skeptical based on super low sales. That made me feel that they were being pumped up too much. But now that one less finalist is in the running for the USPS fleet contract, I’m thinking differently.
Workhorse’s sales stink. But Workhorse probably won’t suffer for it. The company has strategically put itself in a strong position in a niche area of the young EV market. I now see why investors and analysts are so keen on them. Buy.
As of this writing Alex Sirois did not own shares of any of the above mentioned stocks.
