Proterra seems to have a lot going for it. The electric-vehicle technology company operates in a hot field and avoids face-to-face competition with crowded fields, including Tesla,
Unlike many EV companies, it already has products and sales, and profits should come soon. In fact, it’s a leader in a space that’s almost in its own right: electric buses.
Still, for all that, 2021 was a bumpy road for the Burlingame, Calif.-based company, whose stock, at about $9, is down 20% for the past year, compared to a 9% drop for the smaller index. -cap growth stock.
Protera (ticker: PTRA) has one major problem: It merged with one of the SPACs in mid-June to go public, and saw its share price drop as investors sold off SPAC at the end of the year. Protera dropped 21% last month, hitting a 52-week low on December 20. Shares now trade below their $10 value upon the SPAC merger. This often signals deeper trouble, but at Protera, it can create opportunities for investors.
Protera’s core business is electric city buses, which are used in short-distance bus services, often in urban areas, a growing market with only a few competitors, such as the NFI Group (NFI. Canada) New Flyer. Protera accounts for about 50% of the developing market.
The company produced its first bus in 2010 and delivered 52 in the third quarter of 2021, up from 33 a year earlier. Roughly 5,000 to 6,000 transit buses are sold annually in North America, so battery-powered vehicles take over the market share. The company’s sales should be around $243 million in 2021, with some 80% of that coming from buses. Fourth quarter sales, which are to be reported in early 2022, are estimated at $69 million. Sales are expected to grow to $407 million and $784 million in 2022 and 2023, respectively.
Proterra has two other viable businesses that generate the remainder of its revenue. First, it makes battery systems for other bus and truck manufacturers—a big strategic plus, Protera provides technical information and relationships with battery suppliers.
The auto industry is currently scrambling to secure a supply of batteries for the expected EV boom, and Proterra has already gotten its foot in that door. BofA Securities analyst Sherif Al-Sabbahi called the company’s battery technology core his investment thesis, and compared Proterra to Cummins (CMI) and the diesel engine supply role. He evaluates buy shares with a $15 price target.
The company has two battery-generation facilities with an annual capacity of about one gigawatt-hour, enough to manufacture a few thousand commercial electric vehicles a year. Protera announced plans in December for a third battery-pack facility, which would be the largest with “several gigawatt hours of annual production capacity,” Protera says.
In the third quarter of 2021, Protera delivered 78 battery packs to commercial customers, including Daimler Trucks subsidiary Thomas Bilt Buses, which is known for its yellow school buses. Protera’s battery production grew 95% year over year during this period.
Protera also provides electric charging stations for commercial fleet operators. It’s a growing business, building a mini-EV ecosystem that enables Proterra to sell EVs, an EV powertrain, and EV charging equipment and software to customers.
“We see Protera as having some unique positives compared to already emerging EV peers,” Vertical Group analyst John Lopez wrote in a November report. He likes its position in an expanding market and “sees attractive opportunities for growth and diversification outside of its core transit market.”
And other possibilities are brewing. In October, Proterra announced that it had essentially switched electric school buses in Massachusetts to rolling electric generators. School buses, which are only used for a few hours a day, provided electricity back to the grid while they were parked.
“We need to look at the electrification of commercial vehicles for this opportunity. And it’s more than just transportation,” says Gareth Joyce, who took over as CEO on January 1, after serving as president. “What you see in this application is innovation.”
Vertical Group’s Lopez, for his part, rates Protera as a buy. Its $24.75 price target is the highest on Wall Street, meaning a gain of around 170%. This is based on their 2025 projected EBITDA or 20 times earnings before interest, taxes, depreciation and amortization of approximately $440 million. This figure works out to a fair value of about $40 per share in 2025, or about $25 today. The multiple may sound aggressive, but the Russell 2000 Growth Index trades for an estimated 17 times 2021 EBITDA.
The average target price among the six analysts is around $16, up almost 70% from recent levels. This alone would be an attractive return, but investors typically demand more from newer, more speculative stocks.
Of course, there are risks. One of the biggest is how fast commercial vehicle manufacturers go electric. Lopez doesn’t doubt they will, but she is unsure when. With Proterra, he says, “you have a more established business that keeps the lights on while you wait for your secular, more lucrative [battery] opportunity to kick. ,
True, Protera is still not profitable, although Wall Street estimates it will generate positive EBITDA in 2023. This makes it a speculative stock, albeit one with more than $700 million in cash. With ongoing cash burn at approximately $40 million per quarter, it has enough money to implement its business plan.
Therefore, at the current stock price, investors can be patient, holding the shares as the business develops.
Write Al Root [email protected]