Lucid Group (NASDAQ:LCID) announced on Oct. 27 that deliveries of its Lucid Air electric vehicle for U.S. customers would begin on Oct. 30. Since that announcement, LCID stock is up 67%, heading into its third quarter 2021 earnings report due after the markets close on Nov. 15.
While the deliveries news is exciting for shareholders to see, it seems that investors are expecting big things from CEO Peter Rawlinson and the rest of the company. It starts with the Q3 2021 press release and subsequent analyst conference call today.
Can LCID maintain its supercharge and keep moving higher post-earnings? I believe it can. Here’s why.
LCID Stock Hits $60
Lucid is trading pennies below $45, up almost 10% on the day as I write this. To get to $60, it needs to jump another 33%. As we’ve seen in the past month, it’s more than capable of meeting this target.
Now, I’m not the one suggesting its stock will hit $60. It’s Bank of America Merrill Lynch analyst John Murphy. InvestorPlace’s Eddie Pan recently covered some of his comments about the luxury EV manufacturer.
Murphy, who is lead U.S. auto analyst at the brokerage, upped his forecast for the enterprise value-to-sales multiple from 3x to 8.5x while increasing his EV/EBITDA to 104x from 37x previously. That’s a considerable step up.
Assuming $60 is a done deal, what’s it got to do in terms of sales and deliveries to hit the target?
Well, based on 1.62 billion shares outstanding, it would have a market capitalization of $97.2 billion ($60 multiplied by 1.62 billion) and an enterprise value of $96.2 billion based on zero debt — it does have a convertible promissory note worth $1.2 billion as of June 30 — and $1 billion in cash on its balance sheet.
So, using the EV/Sales multiple of 8.5x, Lucid’s sales would have to reach $11.3 billion. That’s billion with a “B.” But, based on the 520 cars it’s delivered and a price tag of $169,000, it’s less than 1% of the way there.
According to my colleague’s report, Murphy’s estimates are based on 2025 sales. So unless something terrible happens between then and now, $60 by 2025 looks pretty conservative. That’s 66,864 deliveries annually by 2025.
Elsewhere on here on InvestorPlace, Mark Hake pointed out recently that Lucid expects 20,000 deliveries by the end of 2022. So to get to 66,864 by the end of 2025, it would need to grow them by 50% a year between 2023 and 2025.
The Other Analysts
As Eddie’s article stated, there are also price targets of $35, $28 and $12 from Wall Street analysts. The four give LCID an “overweight” rating with an average target price of $33.33.
So, something has to give come today’s Lucid’s Q3 2021 earnings.
Either, LCID stock gets crushed, which is unlikely given investors already know there is very little revenue data to go on at the moment. However, that will undoubtedly change in the quarters to come.
Or, conversely, analysts like what they hear from CEO Rawlinson about Lucid Group’s future and up their targets from where they currently sit. The latter scenario seems more likely.
That said, I could see LCID stock correcting back into the $30s on the news, building volumes for the next leg up.
InvestorPlace contributor Louis Navellier recently made an interesting sidebar to earnings when he brought up the trillion-dollar infrastructure bill that passed on Nov. 9.
“Perhaps it’s not something that directly improves the company’s fortunes, but it helped to bolster enthusiasm for EV stocks in general. It was also enough to give LCID stock an added jolt. This ultimately gave it enough momentum to sustain its rally up to $48 per share,” Navellier stated on Nov. 11.
My colleague noted that Tesla (NASDAQ:TSLA) was having issues scaling production as recently as 2020, so it’s unrealistic to think Lucid will go from less than 1,000 deliveries today to 250,000 by 2026 without a whole lot of volatility and hiccups in its business plan.
Can it keep moving higher post-earnings? I suppose it can.
However, the realist in me says it falls back some and takes a breather. So if you can get some shares in the $30s, and you’re an aggressive investor, I would do so.
It’s an excellent long-term 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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.