On Friday, Piper Sandler adjusted its outlook on Rivian Automotive Inc (NASDAQ:RIVN) shares, reducing the price target to $19.00 from the previous $21.00, while retaining an Overweight rating on the shares.
The firm noted that Rivian's stock showed a modest increase in after-hours trading, rising by 1.7%. This adjustment comes in the wake of supply chain disruptions that are expected to negatively impact Rivian's production outlook.
The analyst from Piper Sandler remarked that the market had likely anticipated the downward impact on Rivian's guidance, referencing an announcement made by the company on October 4. The stock's recent performance has been shaky, attributed in part to slower production rates and, as suggested by the analyst, the delay in finalizing a joint venture (JV) with Volkswagen (ETR:VOWG_p).
The analyst anticipates that once the details of the JV with Volkswagen are made public, which is expected to happen within the next few weeks, Rivian's valuation could see an expansion. Piper Sandler plans to reassess its model for Rivian following the announcement of the JV terms.
In the meantime, the firm has decided to lower its estimates and price target for Rivian, aligning with the consensus that had already been adjusted to reflect a slower ramp-up in production. The analyst's comments indicate a cautious but still optimistic view of Rivian's future performance, pending the finalization of the joint venture and resolution of the supply chain issues currently affecting production.
In other recent news, Rivian Automotive Inc continues to make strategic moves in the electric vehicle (EV) industry. The company has secured a significant five-year agreement with South Korean company, LG Energy Solution, for the supply of advanced 4695 cylindrical batteries, essential components in EV manufacturing. This deal ensures a total of 67 GWh of battery capacity for Rivian over the contract duration, supporting the company's EV production endeavors.
In other recent developments, despite a dip in quarterly revenue, Rivian maintains its gross profit forecast for the fourth quarter. The decline in revenue was partially due to a shortage of a specific component, yet the company remains confident in achieving a positive gross margin in the current quarter. This expectation is attributed to cost reductions and an increase in revenue per unit sold.
Rivian also reported a third-quarter revenue of $874 million, falling short of analyst expectations. However, the company remains on track to achieve a positive gross profit in the fourth quarter of 2024, citing improvements in revenue per unit, variable costs, and fixed costs as key factors. Rivian continues to make progress in its operations, maintaining its full-year 2024 delivery outlook of 50,500 to 52,000 vehicles.
InvestingPro Insights
Recent InvestingPro data provides additional context to Rivian's current financial situation, aligning with Piper Sandler's cautious yet optimistic stance. As of the last twelve months ending Q3 2024, Rivian's revenue stood at $4.55 billion, with a notable revenue growth of 20.33%. However, the company's gross profit margin of -43.42% underscores the challenges in production efficiency that Piper Sandler highlighted.
InvestingPro Tips reveal that Rivian is "quickly burning through cash" and "suffers from weak gross profit margins," which corroborates the analyst's concerns about production ramp-up and supply chain disruptions. On a positive note, Rivian "holds more cash than debt on its balance sheet," potentially providing some financial flexibility as it navigates these challenges.
The current market cap of $10.13 billion and the InvestingPro Fair Value of $11.38 per share suggest that the stock might be undervalued compared to Piper Sandler's reduced target of $19. This discrepancy could reflect the market's uncertainty about Rivian's near-term prospects, particularly in light of the pending Volkswagen joint venture announcement.
Investors seeking a more comprehensive analysis can access 11 additional InvestingPro Tips for Rivian, offering deeper insights into the company's financial health and market position.
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