Major banks say to buy Nikola on the dip, citing confusion over the quarterly results

Published Wed, Aug 5 20209:30 AM EDTUpdated Wed, Aug 5 20209:38 AM EDT

(This story is for CNBC PRO subscribers only.) Investors are selling shares of Nikola following the company's first quarterly report as a public company, but major Wall Street firms think the stock is still a buy, and that the sell-off offers an attractive entry point. The stock fell more than 15% during early trading on Wednesday. "There are catalysts immediately ahead, and we therefore recommend accumulating shares in NKLA," said JPMorgan, while Deutsche Bank said the the stock continues to offer a "favorable near term set up." The battery-electric and hydrogen-powered truck maker reported an adjusted loss of 16 cents per share for the second quarter, but analysts note that this shouldn't have sent the stock meaningfully lower since the company was always expected to report a loss. Cowen's Jeffrey Osborne, who has an outperform rating on the stock, chalked up some of the factors that led to the steep selloff in extended trading to a "'new' IPO and a company without a full time IR role" since there could have been clearer communication from the company. He noted that items such as the updated share count, as well as false reports that notable investor Jeffrey Ubben liquidated his position in Nikola, fueled the frenzied after-hours trading. Filings on Tuesday night showed that ValueAct suddenly had no position in Nikola, but it wasn't a sale — just a transfer of general partner. Ubben decided to step down from ValueAct in June in order to launch Inclusive Capital Partners, so the Nikola position was simply transferred to his new fund. "We believe the optics of these two matters made the RobinHood/retail crowd head to the exits," he said, before adding that it opened up a buying opportunity for other investors. For now, all three firms pointed to catalysts in the coming months that could push shares higher. Deutsche Bank analyst Emmanuel Rosner reiterated his short-term buy catalyst call on Wednesday — initially issued on Monday ahead of Nikola's earnings — saying the company "confirmed it is well on track to deliver the following critical milestones over the next few months." This includes, among other things, an original equipment manufacturing partner for Nikola's Badger pickup, as well as a large purchase agreement for its battery electric truck. Nikola has attracted significant investor interest since going public on June 4 through a reverse merger with special acquisition company VectoIQ. After opening at $37.55 on June 4, the stock climbed to an all-time intraday high of $93.99 on June 9. But since then the stock has moved steadily lower and closed at $38.84 on Tuesday, or roughly 59% below its all-time high. The stock, which is popular with retail investors, has been volatile since its public debut. In its 43 trading sessions as a public company, it's seen 11 days of a more than 10% move in either direction, most recently on Monday when shares jumped 21.63%. While JPMorgan, Deutsche Bank and Cowen are positive on the stock after earnings, all three acknowledged the risks baked into a company that has yet to produce a vehicle, especially as automakers rush to bring electric vehicles to market amid shifting consumer interest. "In our view, NKLA is currently a story stock, trading on a massive multiple of distant-future earnings, and this naturally focuses the investment community on downside risks," said JPMorgan's Paul Coster. "But we also think it worth dwelling on what could go right here, which is that the company executes to plan, captures a significant share of the global truck market, and emerges as a key infrastructure provider in a future hydrogen-based economy." The firm is overweight on the stock. Deutsche Bank, on the other hand, has a hold rating due to "pending customer and partner validation, and early company traction with executing the business plan." - CNBC's Michael Bloom contributed reporting.

Nikola Motor Company Badger pickup truck

Source: Nikola Motor Company

(This story is for CNBC PRO subscribers only.)

Investors are selling shares of Nikola following the company's first quarterly report as a public company, but major Wall Street firms think the stock is still a buy, and that the sell-off offers an attractive entry point.

The stock fell more than 15% during early trading on Wednesday.

"There are catalysts immediately ahead, and we therefore recommend accumulating shares in NKLA," said JPMorgan, while Deutsche Bank said the the stock continues to offer a "favorable near term set up."