Rivian Stock Is Down but Not Out. A Wall Streeter Sees a Path for Profits.

In a note Friday, Levy wrote that he is confidence that Rivian (ticker: RIVN) is on a path to positive gross profit margins after he paid a visit to its assembly plant in Normal, Illinois. The company still faces challenges, but improvements are in place. Things are, as he put it, “becoming more normal at Normal.”

The progress that makes the stock attractive to Levy is a reduction in per-unit costs as well as tamped-down expectations from investors. He rates the stock Buy and has a $22 price target.

Share price tells the story of expectations. The stock is down 21% this year, 54% over the past 12 months, and 92% from its record high of $179.47, reached shortly after Rivian’s November 2021 initial public stock offering, or IPO.

A slower-than-expected ramp-up in production and higher-than-expected costs are two factors that have weighed on shares. At the time of the IPO, Wall Street projected deliveries of about 100,000 vehicles this year. Rivian expects to produce about 50,000.

Also around the time of the IPO, Wall Street expected Rivian to produce positive gross profits in 2023. Now, analysts project a loss of about $1.9 million.

“We’ve simplified our operations…We’ve driven efficiency into how we’re building our vehicles,”Rivian CEO R.J. Scaringe said Friday at a Bernstein investor conference. “And we’re seeing quarter-over-quarter cost improvements on our path to profitability.”

Potential cost improvement, and Levy’s report, are two reasons why the stock was up 1.1% in midday trading, at $14.74. The

S&P 500
and

Dow Jones Industrial Average
were up 1.3% and 1.7%, respectively.

Levy isn’t alone in his bullish opinion. Overall, 58% of analysts covering Rivian stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 535. The average analyst price target is about $24 a share.

Investors have felt a little better about Rivian shares lately. The stock is up almost 30% from its 52-week low reached in April. Then, shares were worth less than the cash Rivian had on its balance sheet. Rivian is using cash to build its business. Still, trading for less than cash was a surprise.

At the end of the first quarter, Rivian had almost $12 billion in cash. Its market capitalization today is about $14 billion. The company also has about $2.7 billion in debt for investors to consider in its overall valuation.

Write to Al Root at [email protected]