Thursday was a bonanza day for EVgo (NASDAQ:EVGO) investors, to say the least. Shares surged by an almighty 61% after the EV charging firm announced it had received a conditional $1.05 billion loan commitment from the Department of Energy’s (DoE) Loan Programs Office.
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The loan was provided through its Title 17 program to speed up the growth of its fast-charging network throughout the U.S. and should fund up to 7,500 DC fast chargers. Key state markets are likely to include Arizona, California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, Pennsylvania, and Texas. If finalized, EVgo anticipates finishing the installation of the new stalls by 2030. The company reckons that the buildout of the project will bring about the creation of more than 1,000 jobs, with more than 700 of these being contracted resources employed by the company.
Interestingly enough, just prior to the announcement, J.P. Morgan analyst Bill Peterson upgraded his EVGO rating from Neutral to Overweight (i.e., Buy) and placed the stock on a Positive Catalyst Watch based on growing confidence a loan was on the way. However, the disclosure came rather sooner than the analyst expected.
While Peterson thinks the stock is likely to pullback somewhat after such a huge surge, he keeps a positive stance about what’s coming next. The analyst still sees “upside generally” as the company works toward reaching EBITDA breakeven next year, with expectations to scale beyond that to over $200 million with 7,000 operational stalls, driven by “higher network throughput and better fixed cost absorption.”
The company does not anticipate raising any equity as a requirement for the loan closing, however, Peterson thinks it wouldn’t be surprising if it “opportunistically” goes down that route.
As for the timeframe, considering DoE precedents and the fact EVgo’s business model is relatively established compared to other DOE-supported, “first-of-a-kind technology projects,” the analyst believes the loan is likely to close within 3 to 6 months.
“Overall,” Peterson summed up, “we view the announcement positively as it signals EVgo’s market-readiness, reduces significant funding risk associated with any otherwise capex-heavy infrastructure model, and could position EVgo well against competitors with larger balance sheets.”
Bottom line, Peterson’s Overweight rating is backed by a $7 price target, suggesting the shares will gain another 11% over the coming months. (To watch Peterson’s track record, click here)
EVgo has solid support amongst Peterson’s colleagues, but its current valuation presents a conundrum. EVGO’s Strong Buy consensus rating is based on 8 Buys and 2 Holds. However, the massive surge now means the $5.67 average price target factors in a 23% slide for the stock over the one-year timeframe. (See EVgo stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
