XL Fleet Is Worth Over 70% More Now That Its SPAC Merger Has Closed

XL Fleet (NYSE:XL) closed its SPAC (special purpose acquisition company) merger on Dec. 22 and now XL stock looks to be worth at least 70% more.

A man holding two puzzle pieces surrounded by more, smaller puzzle pieces. SPAC IPOs
Source: Pasuwan/ShutterStock.com

As of Jan. 11, the stock was at $20.72 and by my calculations, it is worth at least 70% more at $35.28.

This article will show how I came up with that target price.

Revenue Forecasts

XL Fleet is a substantial player in the commercial EV market with a lot of momentum versus its peers. This company, which makes hybrid and electric vehicle powertrains for commercial and municipal fleets, is head-and-shoulders ahead of its peers, including Hyliion Holdings (NYSE:HYLN) and Workhorse (NASDAQ:WKHS).

To begin with, XL Fleet is already producing revenue. The management team’s presentation (page 25 and shown below) – including summary financials for 2019 and the next five years are shown – shows revenue in 2019 was $7.2 million, with $21 million forecast for 2020. After that, the growth is non-linear and exponential.

For example, on page 18 of its presentation, XL says that it has a “low risk path to dramatic growth.” It reports that it had $220 million in the pipeline as of September 2020.

In 2021 revenue is forecast at $75.3 million, and $281 million in 2022. By 2023 it expects to make $647.7 million in revenue and $1.377 billion in 2024.

Therefore, to calculate the company’s valuation multiples, we want to use this $1.377 billion forecast for 2024. XL Fleet seems pretty confident about achieving this.

Valuation Calculations

To calculate the company’s present valuation, we will use the following method: first, we discount the future sales by a present-value factor. Then we deduct the cash on the balance sheet from the market capitalization to get the current enterprise value (EV). Lastly, we divide the EV by the present value of 2024 sales.

Therefore, using the $1.377 billion in 2024 in sales we have to bring that to its present value by discounting it by 15% annually over four years. This works out to a 57.175% discount factor. As a result, the present value of 2024 sales is $787.3 million (i.e., 57.175% times $1.377 billion).

Next, we calculate the EV. Since there are 143.8 million shares outstanding now, and the stock is at $20.72 (Jan. 11) the market capitalization is almost $3 billion at $2.9795 billion. To derive its enterprise value, we subtract its net cash. Based on the presentation, that is $350 million. Therefore, the EV is $2.629 billion.

Therefore we can divide this EV by the present value of XL Fleet’s 2024 sales. This means we dividend $2.629 billion by $787.3 million. That works out to a 3.33 multiple.

That is not very expensive. A more realistic valuation would be to use a multiple of 6 times sales. For example, if we multiply the $787 million present value of 2024 sales by 6 we get $4.724 billion. This is the EV, so we need to add back the $350 million to get its market cap. This means that XL stock is worth $5.073 billion.

There are 143.8 million shares outstanding. Therefore, the target price is $35.28 (i.e., $5.073 billion divided by 143.8 million). This is the real value of XL stock. It represents a potential gain of 70% today.

What to Do With XL Stock

Citron Research recently came out with a price target of $60 for XL Fleet, according to Barron’s. They used a 6 times sales figure, just like we did.

However, we discounted the future sales by 15% annually. This is very important since it takes into account both the time value of money and various risks.

XL stock shot up after those comments by Citron. But the stock has come back since then. I do think that investors are going to want to see how XL Fleet performed in the fourth quarter. They also want to see what forecast the company has going forward.

Nevertheless, I believe the stock is still worth at least 70% more than its present price. Even if it takes two years for this to happen, the compound ROI is 30.3% annually for the next two years. That is a great expected return for most investors.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.


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