JPMorgan analyst sticks with buy rating on Nikola despite chairman's resignation

Published Mon, Sep 21 20209:37 AM EDTUpdated Mon, Sep 21 20204:02 PM EDT

(This story is for CNBC Pro subscribers only.) Shares of Nikola are tanking on news of its founder's exit as executive chairman, but JPMorgan is standing by its bullish call on the high flying electric truck company. The Wall Street firm stuck with its overweight rating on Nikola on Monday, but cut its 2021 price target to $41 per share from $45 per share to "reflect the risk associated with the resignation of the Founder and Executive Chairman." The electric truck maker said the board accepted Trevor Milton's resignation. It said he'll be replaced by Stephen Girsky, former vice chairman of General Motors and a member of Nikola's board, effective immediately "We believe the inbound Chairman, a former GM board member, is probably better suited to the next – execution – phase of the company's development, but Trevor Milton's resignation could weigh on some of the partner and customer relationships he has forged, and employee morale is probably fragile right now, just as the workload is intensifying and competitive threat looms," JPMorgan analyst Paul Coster told clients on Monday. Nikola plunged 19% Monday after the company announced Milton's resignation as executive chairman and a member of its board. Earlier this month, Nikola, which makes battery-electric and hydrogen-powered trucks, was accused of fraud by Hidenburg Research. The short-selling firm said Nikola made false statements about Nikola's technology in order to grow and secure partnerships with auto companies, including General Motors. GM announced earlier this month that it's taking an 11% stake in the electric truck maker worth about $2 billion. Nikola said there were numerous inaccuracies in the report. The company began trading in June after a reverse merger with VectoIQ, which is a publicly traded special purpose acquisition company headed by Girsky. Shares of Nikola were up more than 230% in 2020 as investors, both institutional and retail, bet on the company's push into electric trucks. However, Nikola doesn't expect to generate revenue until 2021. "We increased the discount rate in our PV calculation of stock value by 10% to 22%, but left the business model and forward valuation multiple unchanged, on the assumption that the company will still execute to plan given that most developments to date have slightly exceeded our expectations, that is with the exception of Mr. Milton's social media and marketing missteps," Coster said. Wedbush kept its neutral rating on Nikola following the announcement of Milton's departure. "Trevor stepping down voluntarily at Nikola will be perceived by the Street as a major near-term gut punch for the company's lofty EV ambitions as he plays a key role strategically in driving the company's vision," Wedbush Securities Dan Ives told clients. "While there will be a lot of worries on the Street around Trevor's departure especially in light of the bear noise recently with the company, going forward Nikola has a strong bench and now it's all about execution going forward with the GM partnership a linchpin to its success." "In a nutshell, Nikola is still a 'prove me' stock, which speaks to why we are watching this from the sidelines with a NEUTRAL rating until we can get more confidence in the EV and hydrogen fuel cell execution story over the next 12 to 18 months," Ives added. — with reporting from CNBC's Michael Bloom.

Founder of Nikola, Trevor Milton speaks during presentation of its new full-electric and hydrogen fuel-cell battery trucks in partnership with CNH Industrial, at an event in Turin, Italy December 2, 2019.

Massimo Pinca | Reuters

(This story is for CNBC Pro subscribers only.)

Shares of Nikola are tanking on news of its founder's exit as executive chairman, but JPMorgan is standing by its bullish call on the high flying electric truck company.

The Wall Street firm stuck with its overweight rating on Nikola on Monday, but cut its 2021 price target to $41 per share from $45 per share to "reflect the risk associated with the resignation of the Founder and Executive Chairman."

The electric truck maker said the board accepted Trevor Milton's resignation. It said he'll be replaced by Stephen Girsky, former vice chairman of General Motors and a member of Nikola's board, effective immediately