What happened
In most investors’ opinion, Lucid Group‘s (NASDAQ: LCID) decision to sell $1.75 billion worth of senior convertible notes yesterday — and perhaps more than $2 billion worth — was unqualifiedly horrible news. That was clearly the reason Lucid stock plunged 18% yesterday when the offering was announced.
But not everyone thinks it’s a bad idea for Lucid to raise an extra $2 billion in cash, and this may be the reason the stock is bouncing back today — up 2.7% as of 11:55 a.m. ET.
So what
One notable fan of Lucid’s cash grab is investment bank Morgan Stanley. In a note last night (of which we were kindly provided a copy by our friends at TipRanks.com), the investment banker argues that Lucid made a “wise decision” to raise cash while its stock is popular, helping the near-revenue-less company secure a 1.25% interest rate on its debt (and later, a good conversion ratio into its richly priced shares, should it choose to convert the debt into shares).
With this cash in hand, Lucid’s war chest will swell to as much as $7 billion in cold, hard cash, notes Morgan Stanley — cash Lucid can deploy to cover “the enormous amount of capital required to launch an EV business” and help expand production to the company’s targeted volume of 20,000 units next year — and the annual production of as many as 400,000 electric cars that Morgan Stanley thinks it can achieve by 2030.
Now what
Now mind you, even Morgan Stanley is not entirely optimistic about Lucid stock. On the contrary, the analyst thinks Lucid shares, which cost more than $37 apiece today, are actually worth less than half that — only $16 apiece.
Still, we’ve seen similar EV stocks achieve stratospheric valuations in the past, and Morgan Stanley seems cautious about counting Lucid out just yet. Despite its low intrinsic valuation of the business, Morgan Stanley has only an “in-line” (i.e., hold) rating on Lucid stock. And the fact that Lucid seems to be taking “a page out of Tesla’s own book” suggests other investors might also want to keep Lucid on their radar.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
