NIO Inc.’s stock was set to bounce slightly Friday, after J.P. Morgan indicated that the China-based electric vehicle maker’s lowered margin and deliveries outlook has set a bottom for results.
In a note titled “Bottoming out,” J.P. Morgan analyst Nick Lai reiterated the overweight rating he’s had on the stock since October 2020. The stock price target was kept at $ 30, which implies about 59% upside from Thursday’s closing price of $ 18.82.
The U.S.-listed stock NIO, -7.65% gained 0.2% in premarket trading Friday, after dropping 7.7% the previous session in the wake of NIO’s disappointing outlook. Prior to the post-earnings selloff, the stock had rocketed 60% since closing at a two-year low of $ 12.71 on May 11.
Lai acknowledged that NIO’s first-quarter results were a “mixed bag,” but said the company’s call for second-quarter deliveries to decline “isn’t a surprise” given the COVID-19-related lockdowns in Shanghai. Lai said investors should focus on the company’s outlook for the second half of the year, when supply-chain constraints should ease as lockdowns are lifted.
“What’s more important from here, in our view, is the path of production as well as margin recovery in 2H22 after the bottom in 2Q22,” Lai wrote in a note to clients.
Lai believes NIO will ramp up production rapidly along with new models and easing supply constraints in the second half of the year, with “significant sequential volume growth” in the third and fourth quarters.
Mizuho analyst Vijay Rakesh also remained bullish on NIO following results, saying “soft” outlook for the current quarter was expected, and there are “multiple drivers” for a second-half rebound. Rakesh trimmed the stock price target to $ 55 from $ 60, but that new target still implied a nearly tripling off Thursday’s closing price.
“Despite short-term headwinds, we believe NIO remains well positioned to benefit from multiyear EV ramp, leadership in premium EVs in China the largest EV market, with future growth as EU/Global expansion and mass market entry ahead,” Rakesh wrote.
In all, no less than nine of the 33 analysts surveyed by FactSet lowered their stock price targets in the wake of NIO’s results and outlook. Wall Street remained overwhelmingly bullish, however, with 32 analysts having the equivalent of buy ratings and the other having the equivalent of neutral. And the average price target of $ 35.30 implying 88% upside.
NIO shares have tumbled 40.6% year to date, while the iShares China Large-Cap exchange-traded fund FXI, -3.80% has declined 10.6% and the S&P 500 index SPX, -2.38% has lost 15.7%.