By Michael Elkins
Morgan Stanley reiterated an Overweight rating and $26.00 price target on Rivian Automotive (NASDAQ:RIVN) as the company's stock trades just below its cash value.
MS analysts wrote in a note, "When you see an auto stock trading at or near a negative enterprise value, it may be tempting to open up your excel model and solve for 'what's in the price' as you subjectively tweak inputs like top line growth, margins, capex ratios, WACC, and other items. The stock is discounting continued cash burn that lasts for years, not quarters. Rather than solving for one operating variable, we think the stock market is taking a bit more of a blunt approach."
Morgan Stanley held discussions with investors following Rivian's 4Q conference call and notes not just the preponderance of negative sentiment around the name, but also frustration around strategy and lack of conviction in the strategic direction of the company. However, Morgan Stanley remains compelled by the company's differentiated product, scalable end markets, cost-cutting potential, cash balance, and valuation.
"We understand it may take several quarters for the company to establish an execution track-record to rebuild trust with investors that is required to invest in its long term growth strategy," wrote the analysts. "Outside of OW-rated Tesla (NASDAQ:TSLA), Rivian remains the only EV start-up name we recommend within our US coverage."
Shares of RIVN are up 0.22% in pre-market trading on Wednesday.