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Loss of USPS Contract Not a Killer Blow for Workhorse Stock, But It Hurts

Commercial electric vehicle (EV) manufacturer Workhorse Group (NASDAQ:WKHS) has felt the downside of the sky-high EV stock market this week. On Feb. 4, WKHS stock peaked at an all-time close of $41.34 (up 1,260% over the previous 12 months). That capped a run based on the potential for Workhorse to win a USPS contract to replace outdated delivery vans.

Image of a Workhorse (WKHS) logo and drone on the side of a truck.

Source: Photo from WorkHorse.com

The contract was for up to 180,000 delivery vehicles and worth up to $6 billion. Workhorse was a finalist and the only pure EV contender. When the USPS announced the winner — and it wasn’t Workhorse — WKHS stock tanked.

After dropping nearly 50% in a single session on Feb. 23, WKHS stock is now trading in the $17 range. Does the loss of the USPS contract spell the end for Workhorse? Or is there a chance the stock may stage a recovery?

Analyst Reaction

In the aftermath of the USPS contract loss, analysts began a round of WKHS stock downgrades.

Colin Rusch of Oppenheimer downgraded WKHS to “perform” from “outperform.” In a note to clients, he wrote:

“Given [Workhorse] missing the U.S. Postal Service contract entirely, and facing a choppy supply-chain situation due to Covid-19–related headwinds, we are stepping to the sidelines.”

Meanwhile, Cowen analyst Jeffrey Osborne had a mixed take on the news. He retained his “outperform” rating for WKHS, but lowered his price target from $25 to $18. Osborne is questioning the awarding of the contract given President Joe Biden’s administration’s commitment to zero-emission government fleets. He suggests that the USPS postmaster general — President Donald Trump’s appointee Louis DeJoy — may have had political motivations for the decision. If that proves true, Osborne has hopes that the decision might be overturned, or the contract split.

Other Irons in the Fire

While the USPS contract has been the holy grail for WKHS stock investors, the company has continued to soldier along with other ventures.

It’s been working with UPS (NYSE:UPS), the country’s largest courier company since 2018. In total 1,000 Workhorse electric vehicles have been ordered with the familiar brown and yellow paint job for evaluation. Last July, it was announced that Workhorse C-1000 vans would be available for rental or lease by Ryder (NYSE:R), a national commercial fleet-management company.

In November, Pritchard Companies ordered 500 all-electric C-1000 delivery vehicles. In January, Workhorse announced that Pride Group Enterprises has signed a contract to purchase 6,320 C-Series all-electric delivery vehicles. Delivery for that order could start as early as July and will run through 2026.

Bottom Line on WKHS Stock

There is no doubt that now is not the time to snap up WKHS stock, even though it is trading at less than half the value of its February all-time high close. The company had a lot riding on the USPS contract, and the price of WKHS shares has had the assumption that it would get at least a chunk of the contract built in since last summer.

However, the company is far from being in danger of collapse at this point. It has recently signed contracts to provide its C-1000 and C-650 electric delivery vans to several transportation fleets. Its EVs also continue to be evaluated as last-mile delivery vehicles by courier companies. The numbers involved can’t come close to supporting the valuation of WKHS stock had when the company was a finalist for supplying 180,000 USPS vans, but let’s not forget that the stock was trading in the $2 to $3 range for three years before last summer’s USPS frenzy began.

That being said, there is a possibility — a hope — that the USPS contract could be reopened to force more pure EVs into the mix. If that were to happen, Workhorse could still slide in with a massive order, even if it’s only part of the overall contract. But I wouldn’t bet on it. And I wouldn’t buy WKHS stock at this price. 

On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/loss-of-usps-contract-not-a-killer-blow-for-wkhs-stock-but-it-hurts/.

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