How Workhorse can survive missing out on a $6 billion USPS contract, according to experts

  • Workhorse’s stock price plunged after it failed to win a major contract from the US Postal Service.
  • But experts said there are still reasons to be optimistic about the electric-van company.
  • It has a head start over competitors, orders from UPS, and a licensing deal with Lordstown Motors.
  • Visit the Business section of Insider for more stories.

Workhorse’s stock price plunged after news broke that the electric-vehicle company had lost a contract to make delivery vans for the United States Postal Service to defense contractor Oshkosh. The sharp drop suggests investors viewed the potential USPS contract as a significant percentage of Workhorse’s potential value.

“As you can see from the volatility in the stock-price reaction, there were a lot of investors thinking that this was kind of their golden ticket,” Patrick Donnelly, an analyst at the research firm Third Bridge, told Insider.

In a press release, Workhorse said it has requested more information from the USPS, and that it “intends to explore all avenues that are available to non-awarded finalists in a government bidding process.”

Even if it can’t reverse or mitigate the loss of this contract — which Bloomberg Intelligence estimated could be worth more than $5.7 billion — Workhorse should be alright, Donnelly and two other experts said. The startup has received orders for around 8,000 vehicles, according to Oppenheimer & Co.; counts UPS and DHL among its customers; and in January landed its largest order to date, for more than 6,000 vans. The company also licensed the design and technology of its W-1 pickup truck to Lordstown Motors, and will get a cut of the revenue from every truck Lordstown sells.

Though analysts from Cowen and Oppenheimer said in research notes published on Tuesday and Wednesday, respectively, that they’re now less enthusiastic about Workhorse’s stock, they believe the company, which lost $211 million on $741,000 in revenue during the first nine months of 2020, will become profitable by 2024. A group of Cowen analysts said in their Tuesday note that the collapse in Workhorse’s stock price could create an opportunity for new investors.

“While investors are clearly shooting first and asking questions later, we believe that [Workhorse] could present a compelling entry point following the ~50% sell off,” the analysts wrote.

Though the electric-van market is becoming increasingly crowded, Workhorse has the advantage of a head start over its competitors, Donnelly said. UPS has already put 345 Workhorse vans on the road, which has helped Workhorse build credibility, he added.

Of course, there are still challenges ahead. Workhorse has to prove it can ramp up production of its newer models and build out the service and support infrastructure its customers will need, Donnelly said. Many of the company’s orders are concentrated in a relatively small group of customers, Oppenheimer analysts said in their Wednesday note, while $200 million of convertible debt due in 2024 could become a burden if Workhorse struggles to increase production and revenue.

But despite the major opportunity Workhorse lost by failing to win the USPS contract, it still has reasons for optimism.

“There is still a positive story here,” Donnelly said.

Source: Read Full Article