The battle of Nikola has started; earnings to watch next week The battle of Nikola has started; earnings to watch next week The battle of Nikola has started; earnings to watch next week

The battle of Nikola has started; earnings to watch next week

Equities 5 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  Nikola shares plunged 11% yesterday on fraud and deception allegations by a short seller. With no immediate defense by the company the shares were taking in the dark. However, the CEO and co-founder Trevor Milton has said he will make a rebuttal before the US market opens. We also take a look at next week's earnings focusing on Adobe that has all the characteristics of a great company.


Nikola shares tumbled 11% yesterday on a short seller report from Hindenburg Research claiming fraud and deception on an unprecedented scale. The bulls fought bravely in the first hour but as the Nasdaq 100 lost momentum during the session the selling pressure became too much for Nikola. The CEO and co-founder Trevor Milton was quick to respond on Twitter, but this tweet has since been removed and instead replaced with a new tweet indicating that he has been working all night on rebuttal which will be out before market opens. Milton’s comments and Bosch’s statement that they feel misquoted in the report seem to have lifted sentiment somewhat with the stock currently up 2% in pre-mkt. Bosch is an early investor and key business partner on the component side for Nikola. Earlier this week GM announced a $2bn equity stake (11% of the share capital) in Nikola and one would think that one of the largest carmakers in the world has done its due diligence. Today’s session is crucial for sentiment in Nikola as any weak defense by Milton will add to the pressure.

Source: Saxo Group

Aside from the short seller report and whether it is correct or not, Nikola has caught attention of its lofty promises to manufacture the world’s best electric truck. The facts are still that the company is valued at $14.2bn with analysts covering the company not expecting more than $283mn in revenue by FY2022. Even in today’s frothy equity market this is an aggressive valuation based on a strong vision and little execution so far.

Adobe is next week’s most interesting earnings release

Earnings releases are running low outside the normal quarterly calendar and only companies not following the regular calendar quarters are reporting. Next week there are four earnings releases worth watching with Adobe being the most interesting.

Adobe reports FY20 Q3 (ending 31 August) on Tuesday after the US market close. Analysts expect revenue of $3.16bn up 11% y/y and EPS of $2.41 up 50% y/y as the business continues to scale with little need for higher fixed operating costs and capex. We have recently talked about the three key indicators of a great company: 1) high ROIC-WACC spread (the return on capital minus cost of capital), 2) earnings predictability (measure of the business’ robustness), and 3) growth in invested capital and revenue. Adobe is a company that scores high on all three indicators. ROIC to WACC ratio is 3.4x with a ROIC of 26% and an earnings predictability of 98% meaning that the company offers few surprises thanks to its new subscription-based business model introduced six years ago. The total invested capital has grown by 9.5% annualized the past 10 years indicating a huge opportunity set for Adobe.

Source: Saxo Group

Three other interesting earnings releases besides Adobe are those from Lennar (Monday), FedEx (Tuesday) and Inditex (Wednesday). Lennar is a US homebuilder and will provide a glimpse and outlook for the US housing market. Lower mortgage rates and the gradual rebound in economic activity has pushed US housing starts almost back to where they were before the US lockdown. FedEx being one of the world’s largest logistics companies is worth watching for clues on global trade and how the economic rebound is progressing. Inditex with its main brand Zara has also been weak on e-commerce and integrating it well into its physical stores. This weakness has been put to full display during the COVID-19 lockdowns and the company is one the worst hit European retailers within fashion.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.