Investors who bought Workhorse Group (NASDAQ:WKHS) in the $40s in early February are praying the company’s recent meeting with the U.S. Postal Service went well. As I write this, there’s been no news on this front. A positive outcome could do wonders for WKHS stock.
I have three questions at this point:
- Does management’s Hail Mary have a chance?
- What are the odds Workhorse succeeds in a world without the post office?
- Is WKHS stock a falling knife worth catching?
Here are my thoughts.
Does Management’s Hail Mary Have a Chance?
Until the postal service shuts the door completely, of course, it has a chance.
However, without knowing the intricate details of the contract, it’s hard to gauge the level of commitment the Post Office has with Oshkosh (NYSE:OSK). I would think you wouldn’t award a 10-year contract without being confident about the winner’s ability to fulfill the terms of the contract.
We do know that Oshkosh will invest $482 million to get the production for the next-generation delivery vehicle (NGDV) up and running. Over the life of the contract, it will build between 50,000 and 165,000 NGDVs that have the capability for electric right off the line or can be retrofitted for electric down the road.
The first vehicles will hit the streets in 2023.
It didn’t hurt Oshkosh’s cause that it announced Feb. 4 a planned $25 million private investment in public equity (PIPE) in Microvast, a company that specializes in next-generation battery technologies for electric vehicles. Microvast is merging with Tuscan Holdings (NASDAQ:THCB), a special purpose acquisition company (SPAC).
InvestorPlace’s Mark Hake believes Tuscan’s stock is worth between $20.92 and $30.15 a share, considerably higher than where it’s currently trading. With Oshkosh’s partnership with Microvast, Hake’s target could be too low.
Ohio politicians have asked President Joe Biden to step in because the $6 billion contract doesn’t fully address the administration’s desire to fully electrify the federal government’s vehicle fleet.
The politicians have a point. If you’re committed to electrification, shouldn’t you at least make Oshkosh increase the percentage of electric vehicles in the contract from 10%?
Workhorse has a legitimate beef.
Prospects Without the Postal Contract
As I stated in January, Workhorse’s chances of success with or without the Post Office got a whole lot more difficult with General Motors (NYSE:GM) entering the playing field.
With GM committed to building BrightDrop into a powerhouse in the production of commercial electric vehicles (CEVs), that immediately set up a David and Goliath scenario. Only in this situation, Goliath crushes David.
In fact, BrightDrop is bad news for all commercial EV startups. Its EV600 will most likely find its way into the FedEx (NYSE:FDX) fleet starting in 2021.
On March 1, InvestorPlace’s staff discussed Workhorse. They pointed out that Workhorse has already been working with UPS (NYSE:UPS). Big Brown has ordered 1,000 of its vehicles to test in the real world. If that goes well, who knows where the relationship goes.
In addition, there have been other orders with large trucking firms that suggest the acceptance level for Workhorse vehicles is higher than most people realize.
The loss of the postal contract pushes the company’s profitability picture back a few years. However, it’s said it would produce 1,800 vehicles in 2021. If it comes anywhere close to that number, it’s got an excellent shot at surviving beyond this year and next.
Is WKHS Stock a Falling Knife Worth Catching?
At $41, WKHS was overpriced, even with the USPS contract potential. Now that it’s trading under $15 as I write this, the level of risk is much lower.
Not gone. Just lower.
In a perfect world, WKHS continues to fall into single digits. If you’re a speculative investor, that’s when I’d consider a position.
Under $10, WKHS is a speculative buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
