Yesterday, U.S. President Joe Biden pledged to replace every single federally owned vehicle with an American-made electric vehicle. Today, shares of electric van maker Workhorse (NASDAQ:WKHS) are soaring. As of this writing, WKHS stock is up more than 30% on the day.
Why?
Because in making that pledge, Biden basically confirmed that Workhorse will win the huge and significantly delayed USPS contract. The entire bull thesis on WKHS resets upon that contract. Thus, if Workhorse does indeed win the contract in early 2021, Workhorse stock will stage an enormous rally over the next 12 months.
The implication?
It’s time to buy Workhorse stock.
WKHS Stock: Winning the USPS Contract
I’ve long held the belief that, despite multiple delays, Workhorse will end up winning the enormous $8.1 billion USPS fleet upgrade contract.
The logic is simple. There are three finalists for the contract. One of them, Karsan, is a Turkish-based company. It’s unlikely a federal U.S. agency taps a Turkish company to supply its vans. The other finalist, Oshkosh — who is partnering with Ford (NYSE:F) — is proposing to make a delivery van built on an internal combustion (so it’s not electric).
Thus, Workhorse is the “best fit” for USPS since it’s a U.S.-based company that makes electric vans.
Biden basically confirmed that Workhorse will, indeed, win the contract.
He’s pledging to electrify federal fleets. That means electric vans. Not a new ICE van. So, Oshkosh is basically out of the running. Biden is also pledging American-made vans. Karsan doesn’t fit that bill. So, they’re basically out of the running, too.
Who is left?
Workhorse.
To that extent, I think it’s basically a done-deal. Workhorse will win the USPS contract. When the company does, WKHS stock will pop in a huge way.
Positioned for a Decade of Hypergrowth
Winning all or most of the USPS contract is a huge near-term deal for Workhorse. It will essentially guarantee the company billions of dollars of revenue over the next few years.
For a company set to do about $1 million in revenue this year, that’s a massive deal.
But, the long-term implications of a USPS contract win for Workhorse are much bigger than the near-term revenue injection.
In winning the USPS contract, Workhorse will cement itself as a viable leader in the electric delivery van market. At the same time, thanks to the USPS partnership, Workhorse will likely be able to raise a ton of money at favorable terms to dramatically expand manufacturing capacity.
Thus, if Workhorse wins the USPS contract, this will be a company that, by 2025, will be a distinguished leader in making electric delivery vans with an unmatched ability to manufacture these vans.
Those are winning attributes which will likely attract many, many new customers to Workhorse over the next few years, as almost all logistics companies in the world follow USPS and electrify their fleets.
To that end, Workhorse winning the USPS contract optimally positions the electric delivery van maker for a decade of hypergrowth ahead.
Behind that decade of hypergrowth, WKHS stock will soar.
Workhorse Stock to $40?
My numbers suggest that WKHS stock will take out the $40 level in 2021.
Here are those numbers.
About 350,000 last-mile delivery vans are sold in the U.S. every year. I think all 350,000 of those vans will be electric by 2030. Workhorse will win the USPS contract, and leverage first mover’s advantage to turn into one of the biggest players in the domestic market. I think market share will round out to about 20% by the end of the decade.
Assuming so, I see Workhorse’s revenues charging north of $5 billion in 2030. Gross margins of 25% seem doable. Increased scale should drive positive operating leverage and push the opex rate down to a more normal 10% rate. Operating margins could clock in around 15%.
All in all, these inputs imply $4 in earnings per share potential by 2030. Based on a 20X forward earnings multiple, that implies a 2029 price target for WKHS stock of $80. Discounted back by 8% per year, that implies a 2021 price target of over $40.
Bottom Line on WKHS Stock
When it comes to WKHS stock, it’s all about the USPS contract. The weight of evidence today — bolstered by Biden’s comments — strongly implies that Workhorse will win that USPS contract, and soon.
Once the company does, WKHS stock is an optimal position to soar above $40.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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