“Weekly Options TradeS” Recommendations
Week Beginning Monday, mARCH 01, 2021

The Major Catalysts for This Trade.....

The Earnings.....

Chipmaker Broadcom easily beat the Street's targets for its fiscal first quarter and guided higher for the current period.

In after-hours trading on the stock market yesterday, AVGO stock dropped 1.5%, near $436.95. During the regular session, AVGO stock sank 4.2% to $443.59.

Broadcom came out with quarterly earnings of $6.61 per share, beating the Consensus Estimate of $6.55 per share. This compares to earnings of $5.25 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 0.92%. A quarter ago, it was expected that this chipmaker would post earnings of $6.26 per share when it actually produced earnings of $6.35, delivering a surprise of 1.44%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

The Major Catalysts for This Trade.....

Sell the Rumor.....

It seems that the "sell the rumor" impact from the Lucid Motors merger remains the dominant driver. Churchill is shrugging off the rise in broader markets and also an upcoming announcement from Dolby and Lucid, due at South by Southwest in two weeks' time. Capital Raise.....

Well CCIV shares had spiked to nearly $65 as the frenzy over the rumoured merger with Lucid reached boiling point. Social media was abuzz with talk of the Churchill Lucid merger. But what many failed to realize was that in the event of the deal progressing there was likely to be a further capital raise needed. Easy to say with hindsight but this is what duly happened, with the PIPE transaction being priced at $15. CCIV shares quickly moved to $30 once the details of the merger became clear and CCIV stock has continued to drop below this level since ever since.

Competition..... 

It is clear given the model lineup and prices touted that Lucid is going for the luxury sector of the vehicle market. For now, none of the mainstream auto manufactures captures the high-end electric vehicle (EV) segment and Tesla has been the standard-bearer here. Not just for the luxury end of the EV sector but for the entire EV sector. Tesla is a luxury brand but Lucid looks to be going after an even higher price point initially before branching out into lower price and SUV segments, but this will take time.

Lucid clearly has the know-how, with a former Tesla chief engineer as CEO but the EV sector is about to become just the normal auto sector as all manufacturers move to electric vehicles. So, stand-alone EV companies are about to face a whole range of competitors. 

Volvo announced on Tuesday that its entire range will be fully electric by 2030. Ford announced in February that its range in Europe will be fully electric by 2030. Jaguar Landrover said its Jaguar brand will be entirely electric by 2025 and fully electric across Jaguar and Landrover by 2030.Valuation.....

Investors had valued Churchill Capital IV at approximately $15 billion before the deal was announced. That was without knowing the exact structure of the deal, but investors in the special purpose acquisition company (SPAC) only get a minority percentage of public company.

Additionally, speculation was that the deal would value Lucid at up to $15 billion, but the actual equity value of the transaction was only $11.75 billion.

The Major Catalysts for This Trade.....

Positive Analysts Input.....

Analysts are optimistic toward PLUG, with nine of the 12 in coverage calling it a "buy" or better. Plus, the security's 12-month consensus target price of $64.03 is a 22.8% premium to current levels. 

JPMorgan analyst Paul Coster upgraded Plug from Neutral to Overweight and reiterated a $65 price target.

Plug Power is an excellent story stock in a market that is hungry for growth, particularly in the alternative energy space, Coster said in a Monday upgrade note. 

Plug shares are down 18% overall in the last month after the company disappointed investors by reporting a net loss of $476.3 million and negative revenue of $316 million in the fourth quarter thanks to a $400-million charge.

Coster said the nascent stage of Plug’s business makes the stock a high-risk investment at this point, but the tremendous long-term upside makes the recent pullback a potential buying opportunity.

“Investors generally seem attendant to the risks associated with this company (particularly a potential rotation from momentum into value), but take the view that PLUG is a leading contender for meaningful share of [the] future Hydrogen economy, in 5 - 10 years,” the analyst said.

Coster said he is anticipating Plug will announce at least one additional “pedestal” customer deal in 2021, in addition to partnerships and joint ventures that will help Plug expand its international footprint.

He is also bullish on the pace of investments in Europe and South Korea and predicted Plug will announce a large stationary deployment with a data center owner sometime in the second quarter.

Coster is now projecting a 2021 adjusted EPS loss of 17 cents on gross billings of $453 million.

And, Oppenheimer analyst Colin Rusch boosted the price target on PLUG from $23 to $62, while reiterating an Outperform (i.e. Buy) rating last week, even after PLUG’s "earnings" report that was a disaster.

Plug Power reported revenue of negative $316 million for the fourth quarter and negative $100 million for the year. In contrast, the company's gross billings were positive $96.3 million for the quarter and $337 million for the full year. The annual gross billings rose 42.5% year over year.

The difference in gross billings and revenue is due to certain warrants that the company gave years ago to its key customer Amazon. In 2017, Plug Power granted Amazon warrants acquiring up to 55.3 million of Plug Power's common shares at roughly $1.20 per share. You can think of this as a kind of rebate that Plug Power, looking for customers, offered to Amazon to buy its fuel cells and services. Vesting of the warrants required Amazon to buy goods and services worth $600 million, over time, from Plug Power. Of this, Amazon expected to make purchases worth roughly $70 million in 2017.

Despite the splotches of bright red ink spilled all over Plug's earnings report, the analyst declared the company's results "solid." Ignoring the negative revenue, he emphasized the fact that management reiterated its guidance for future "gross billings" of $475 million in 2021, adding that Plug plans to grow this number to $750 million in 2023. And he applauded the fact that Plug reiterated its plans to drive forward in an attempt to dominate what it calls "the $10T hydrogen economy," accelerating its green hydrogen generation business, continuing to sign "partnerships, joint ventures and acquisitions" with foreign partners, and expanding "customer relationships across all businesses" in an effort to reach its goals.

Peering far into the future, Rusch posited that if Plug's plans succeed, then by 2026 the company could do as much as $2.6 billion in "gross billings," and earn a percentage internal rate of return on its investments "at least [in the] mid-teens."