On Thursday, Citi adjusted its financial outlook on Polestar (NASDAQ:PSNY) Automotive Holding UK Plc (NASDAQ:PSNY), reducing the price target to $1.70 from the previous $2.50, while keeping a Neutral rating on the stock. The revision comes as the firm updates its model for Polestar, taking into account recent developments such as the company's vehicle delivery numbers and external financing activities.
The analyst from Citi noted that the Q4 2023 figures are still considered estimates due to the delay in Polestar's 20F filing. The firm plans to review its model following the release of updated financials from Polestar.
The softer vehicle deliveries in Q1, among other recent data points, have led to a downward revision of estimates. As a result, the forecast for the cumulative free cash flow burn from 2024 to 2026 has increased to $2.2 billion from the previously projected $1.7 billion.
Furthermore, the anticipated adjusted EBITDA for the year 2030 has been lowered by 7%. Despite these adjustments, Citi's overall perspective on Polestar's narrative remains largely unchanged.
However, the delayed 20F filing, which includes identified historical errors, combined with lowered estimates and perceived execution risks, have prompted the firm to apply a higher discount rate. The new rate has increased to 25% from 15%, and the terminal multiple has been adjusted to 17 times from 20 times, leading to the reduced price target.
Citi has reiterated its Neutral/High Risk rating for Polestar, signaling caution to investors while acknowledging the potential uncertainties and challenges that the electric vehicle manufacturer may face. The firm's stance reflects a careful approach to the stock, considering both the recent performance issues and the broader context of Polestar's business trajectory.
InvestingPro Insights
In light of the recent analysis by Citi on Polestar Automotive Holding UK Plc (NASDAQ:PSNY), it's pertinent to also consider the data and insights provided by InvestingPro. With a market capitalization of $2.89 billion and a revenue growth of 36.94% in the last twelve months as of Q3 2023, Polestar shows a significant scale of operations and a strong top-line expansion.
However, InvestingPro Tips suggest challenges ahead for the company. Polestar may face difficulties making interest payments on debt and is quickly burning through cash, which is a concern for investors considering the company's increased free cash flow burn forecast. Additionally, the stock's high price volatility and weak gross profit margins, which stand at just 2.94%, could indicate operational inefficiencies that need to be addressed.
Moreover, analysts do not expect Polestar to turn a profit this year, and the valuation implies a poor free cash flow yield. These factors are crucial for investors to consider, especially when the stock has seen a significant price fall over the last year, with a 57.85% drop in the one-year price total return as of the current date.
For those looking to delve deeper into the financial health and future prospects of Polestar, there are additional InvestingPro Tips available at https://www.investing.com/pro/PSNY. Users can make use of the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 13 more tips listed on InvestingPro, investors have access to a comprehensive analysis that can inform their investment decisions in the context of the evolving electric vehicle market.
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