May 11, 2023
By Simply Wall Street

Earnings Release:
Here's Why Analysts Cut Their Nikola Corporation (NASDAQ:NKLA) Price Target To US$2.33A

It's shaping up to be a tough period for Nikola Corporation (NASDAQ:NKLA), which a week ago released some disappointing quarterly results that could have a notable impact on how the market views the stock. The numbers were fairly weak, with sales of US$11m missing analyst predictions by 10.0%, and (statutory) losses of US$0.31 per share being slightly larger than what the analysts had expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

Taking into account the latest results, the consensus forecast from Nikola's seven analysts is for revenues of US$154.5m in 2023, which would reflect a sizeable 157% improvement in sales compared to the last 12 months. Losses are supposed to decline, shrinking 16% from last year to US$0.97. Before this earnings announcement, the analysts had been modelling revenues of US$151.7m and losses of US$1.08 per share in 2023. Although the revenue estimates have not really changed Nikola'sfuture looks a little different to the past, with a cut to the loss per share forecasts in particular.

Even with the lower forecast losses, the analysts lowered their valuations, with the average price target falling 26% to US$2.33. It looks likethe analysts have become less optimistic about the overall business. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Nikola analyst has a price target of US$4.00 per share, while the most pessimistic values it at US$1.00. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. The analysts are definitely expecting Nikola's growth to accelerate, with the forecast 253% annualised growth to the end of 2023 ranking favourably alongside historical growth of 136% per annum over the past three years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 4.8% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Nikola is expected to grow much faster than its industry.

The Bottom Line
The most obvious conclusion is that the analysts made no changes to their forecasts for a loss next year. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Nikola going out to 2025, and you can see them free on our platform here..

Don't forget that there may still be risks. For instance, we've identified 5 warning signs for Nikola (2 shouldn't be ignored) you should be aware of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.