Now that Fisker (NYSE:FSR) has signed a definitive agreement with Magna International (NYSE:MGA) to make its new Ocean electric SUV, I took another look as what I wrote about this earlier in December. I believe that analysis still stands especially now that the Magna deal is finalized. And, I still believe Fisker stock is likely worth between $26 and $30.
Fisker says it now has all the money it needs to start producing the Ocean SUV by Q4 2022.
In other words, it won’t need to raise any more capital that would dilute existing shareholders.
With the proceeds of warrant sales that I covered in my Dec. 15 article, shareholders will be diluted once all the holders exercise their warrants to buy shares.
I estimate the extra capital raised will dilute shareholders by about 9% or so.
The company received $1 billion from the merger and now it will have an additional $261 million. That $1.26 billion acts to lower its enterprise value (EV) and valuation, as I show below.
Fisker Stock Valuation
The basis for my optimism about Fisker stock is its valuation comparison with other EV shares. For example, I showed in my previous article that Fisker stock trades for just 2.34 times its adjusted EBITDA in 2025.
Here is how that works. Fisker’s market capitalization is now about $4.52 billion at a price of $15.40 on Dec. 29. After deducting $1.26 billion in cash, including the exercise of warrants, the enterprise value is $3.26 billion.
Moreover, its 2025 EBITDA is forecast to be $2.8 billion. I estimate this is worth a lower amount, about 50%, or $1.392 billion, on a present value basis. I used a 15% discount rate to derive that EBITDA number.
Therefore, the enterprise-to-EBITDA number today is just 2.34x. This is found by dividing the enterprise value (EV) of $3.26 billion by the adjusted present value 2025 EBITDA of $1.392 billion.
This seems to me to be way too low a valuation. As I wrote last time, the stock is likely to move up to a 5-6x EV-to-EBITDA multiple.
For example, at 5.5 times its EBITDA, the enterprise value would be $7.656 billion (i.e., $5.5x $1.392 billion). Moreover, to get the market cap we add back the $1.26 billion in cash. That implies its market cap should be $8.9 billion, instead of $4.52 billion today.
This means that Fisker stock should be 100% higher. Its $8.9 billion market cap valuation is 97% above the existing $4.52 billion market cap today.
And of course, if we used 6x as a multiple, the implied market cap would be $9.6 billion. That is 112% above the present market cap.
In other words, Fisker stock is worth between $30.38 and $32.75 per share (i.e., 97-112% above today’s price).
What To Do With FSR Stock
Other analysts are now beginning to value FSR stock higher than its price today. For example, Tipranks shows that Fisker stock has four analysts who cover the stock. Their average target price is $19.75 a share.
This represents a potential gain of 28.2% above the Dec. 29 price of $15.40 per share. This is also the same price target that Yahoo! Finance reports on Fisker stock.
Moreover, Marketbeat shows five analysts cover Fisker stock, with a consensus target price of $21 per share. This represents a potential gain of 36% above today’s price.
Therefore, given our analysis that Fisker stock is worth at least twice its price and others’ projections, it seems Fisker stock is undervalued.
This is also where Barron’s sees the stock. The magazine wrote in early November that Cowen analyst Jeffrey Osborne believes the stock is worth $22 per share.
So, it seems just about everybody likes Fisker stock. We all think it is bound to move higher. That probably bodes well for its near term future over the next year.
— Mark R. Hake
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Source: Investor Place