On Tuesday, BofA Securities initiated coverage on shares of ZEEKR Intelligent Technology (NYSE: ZK), a high-end electric vehicle (EV) brand based in China, with a Buy rating and a price target of $35.00. The new price objective suggests a 37% potential upside from the company's current trading level.
The firm's analyst cited several drivers for the positive outlook on ZEEKR, including an anticipated compound annual growth rate (CAGR) of 27% in revenue from 2024 to 2026. The brand's profitability is expected to commence in 2026, bolstered by an estimated 31% volume CAGR over the same period. The projected growth is supported by ZEEKR's solid product pipelines and a superior customer value proposition.
In addition to volume growth, BofA Securities predicts gross profit margin (GPM) improvement for ZEEKR, from 13.3% in 2023 to 16.1% in 2026. This improvement is expected to be supported by increasing operating leverage, scale effects, and synergy with Geely Group, ZEEKR's parent company.
The price target of $35 set by BofA Securities is based on the average of discounted cash flow (DCF) and EV/sales (2024) valuation methods. The firm noted that ZEEKR is currently trading at 0.7 times EV/sales for 2024, which is below the average of its peers at 0.8 times.
However, the analyst also pointed out potential risks that could impact ZEEKR's performance. These include a weak macroeconomic environment, the possibility of new model failures, intensifying competition, and a deteriorating pricing environment. These factors could pose challenges to the company's growth and profitability projections.
InvestingPro Insights
As BofA Securities shines a spotlight on ZEEKR Intelligent Technology's promising future, InvestingPro data and tips provide additional context for investors considering this high-end EV player. ZEEKR's substantial revenue growth of nearly 62% in the last twelve months as of Q4 2023 underlines the company's rapid expansion in the competitive automobile industry. Despite challenges in profitability, with an operating income margin of -15.83%, the company's high shareholder yield is a positive signal for investors looking at shareholder returns.
InvestingPro Tips suggest that while ZEEKR's stock is currently in overbought territory, the company is a prominent player in the Automobiles industry. Additionally, investors should be aware that ZEEKR operates with a moderate level of debt and has not been profitable over the last twelve months. It's also notable that ZEEKR does not pay a dividend, which may influence investment decisions for those seeking regular income.
With a market cap of $6.34 billion and a negative P/E ratio reflecting its current lack of profitability, ZEEKR's financials are a mix of strengths and challenges. The company's price, at the previous close of $25.20, is currently below the InvestingPro Fair Value estimate of $19.3, suggesting potential for adjustment.
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