The Proterra share sank during the liquidation of the SPAC. Now the electric bus maker looks like a bargain.

Proterra Greenville installation

Courtesy of Proterra

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Proterra

seems to have a lot to offer. The electric vehicle tech company operates in a hot industry and has avoided head-on competition with a crowded field including,


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.

It already has products and sales, unlike many EV companies, and the profits are expected to come fairly quickly. In fact, he’s the leader in a niche he almost has for himself: electric buses.

Still, for all of that, 2021 has been a bumpy road for the Burlingame, Calif., Based company, whose stock, at around $ 9, is down 20% from a year ago, down from a drop of. 9% for a small index. -capitalization of growth actions.

Proterra (ticker: PTRA) has a big problem: It merged with a SPAC in mid-June in order to go public, and saw its stock price drop as investors sold off SPAC at the end of the year. year. Proterra fell 21% last month, hitting a 52-week low on December 20. The shares are now trading below their price of $ 10 during the PSPC merger. This often signals deeper issues, but at Proterra it can represent an opportunity for investors.

Proterra’s core business is electric city buses, the type used in short-haul bus services, often in urban areas, a growing market with only a few competitors, such as


NFI Group

(NFI.Canada) New Circular. Proterra has around 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. About 5,000 to 6,000 transit buses are sold each year in North America, so there is an advantage as battery-powered vehicles take market share. The company’s revenue in 2021 is expected to be around $ 243 million, of which 80% is by bus. Fourth-quarter sales, which are expected to be released in early 2022, are estimated at $ 69 million. Sales in 2022 and 2023 are expected to reach $ 407 million and $ 784 million, respectively.

Headquarter Burlingame, California
Recent price $ 9.05
Modification of the current fiscal year 2.5%
Sales 2022E (mil) $ 407
Net income 2022E (in millions) – $ 134
2022E BPA -0.53 $
2022E P / E NM
Market value (bill) $ 2.0
Dividend yield Nothing

E = estimate; NM = not significant

Source: Bloomberg

Proterra has two other viable businesses that generate the remainder of its revenue. First, it manufactures battery systems for other bus and truck manufacturers, which is a big strategic plus, giving Proterra technical know-how and relationships with battery suppliers.

The auto industry is scrambling to secure battery supplies for the expected electric vehicle boom, and Proterra has already stepped into that door. BofA Securities analyst Sherif El-Sabbahy calls out the company’s core battery technology in his investment thesis and compares Proterra to


Cummins

(CMI) and its role in the supply of diesel engines. He values ​​the stocks at one buy, with a target price of $ 15.

The company has two battery production facilities with an annual capacity of around one gigawatt hour, enough to manufacture a few thousand commercial electric vehicles per year. Proterra announced plans for a third battery installation in December, which would be the largest, with “several gigawatt hours of annual production capacity,” Proterra said.

In the third quarter of 2021, Proterra delivered 78 battery packs to commercial customers, including Thomas Built Buses, a subsidiary of Daimler Trucks, known for its yellow school buses. Proterra battery production increased 95% year over year during the period.

Proterra also provides electric charging stations to commercial fleet operators. It’s a growing company, creating a mini-EV ecosystem that allows Proterra to sell an EV, EV powertrain, and EV charging equipment and software to customers.

“We believe Proterra already has unique advantages over its emerging EV peers,” Vertical Group analyst Jon Lopez wrote in a November report. He likes their position in an expanding market and sees “exciting opportunities for growth and diversification outside of their main transit market”.

And other possibilities are brewing. In October, Proterra announced that it had essentially turned electric school buses into rolling electric generators in Massachusetts. School buses, which are only used a few hours a day, supplied electricity to the grid while they were parked.

“We need to look at the electrification of commercial vehicles for the opportunity that it is. And it’s not just about transportation, ”said Gareth Joyce, who took over as CEO on January 1, after having served as chairman. “What you see in this app is innovation.”

Vertical Group’s Lopez, for his part, is pricing Proterra a Buy. Its price target of $ 24.75 is the highest on Wall Street, involving gains of around 170%. This is based on 20 times its estimated 2025 EBITDA, or earnings before interest, taxes, depreciation and amortization, of approximately $ 440 million. That figure works out to around $ 40 per share in 2025, which is a fair price of around $ 25 today. The multiple may sound aggressive, but the Russell 2000 Growth Index is trading at around 17 times the estimated 2021 EBITDA.

The average target price among six analysts is around $ 16, almost 70% above recent levels. That alone would be an attractive return, but investors generally demand more from newer, more speculative stocks.

There are risks, of course. Most important is the speed at which commercial vehicle manufacturers are switching to electricity. Lopez has no doubts they will, but he doesn’t know when. With Proterra, he says, “you have a much more established business that keeps the lights on, while you wait for your layman, more attractive. [battery] the opportunity to get started.

Granted, Proterra is still not profitable, although Wall Street predicts it will generate positive EBITDA in 2023. That makes it a speculative stock, albeit with over $ 700 million in cash. With around $ 40 million in cash consumption per quarter, she has enough cash to implement her business plan.

So at the current share price, investors can afford to be patient and hold onto the shares as the business grows.

Write to Al Root at [email protected]

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