Velodyne Falls. Baird Says Self-Driving Car Stock Could Rise 50%

Text size

A new autonomous-driving stock picked up its first Buy rating after a rocky trading debut.

Velodyne Lida

r announced plans to merge with the special-purpose acquisition company Graf in early July. The deal closed this week. Shares plummeted 24.5% to close at $18.69 on Wednesday, the stock’s first day of trading under its new symbol, VLDR.

Investors might have overreacted. Baird analyst Tristan Gerra launched coverage of the company Thursday, rating shares the equivalent of Buy. His target for the stock price is $28, about 50% higher than recent trading levels.

Lidar is, essentially, laser-based radar and part of the suite of sensors auto makers use to achieve advanced safety features, as well as create self-driving cars. Gerra expects sales to grow 55% a year on average for the next four years, hitting $684 million by 2024.

“

Velodyne Lidar

is well positioned to maintain its position as the volume and cost leader—$100 announced [selling prices]—as the company continues to optimize performance and costs along with its proprietary manufacturing,” wrote Gerra in a Wednesday evening report beginning coverage of the stock.

Lidar is expensive. And driving down sensor costs is key to adoption. “Lidars will become an integral part of autonomous vehicles’ sensor systems, owing to camera limitations,” he said. Cameras can’t function in all conditions.

Velodyne says it has more than 300 customers, including auto makers. Gerra writes the company has engaged with

Tesla

(TSLA).

Gerra is the only analyst covering Velodyne at the moment. The average stock in the

Dow Jones Industrial Average

has about 30 analysts.

Despite the relative lack of coverage, Velodyne isn’t small. Its market capitalization, based on the pro-forma total of shares outstanding post merger, is about $3.3 billion. At the stock’s recent high, the market value was more than $5.5 billion.

Velodyne also has warrants outstanding. They trade for about $5 and give holders the right to buy a share for $11.50. A single warrant is for 0.75 shares of Velodyne so it takes 4 warrants to buy 3 shares for $34.50. The math is a little odd.

When it’s all said and done, with shares trading above $11.50, investors can expect warrants to be exercised. That will add about 18 million more shares and give the company another $200 million in cash.

Velodyne stock is up about 2% in premarket trading. Shares are up 35% since just before the company announced plans to merge with the SPAC. All the gain, essentially, came July 2, the day the deal was announced. The

S & P 500

and

Dow Jones Industrial Average

are both up about 8% over the same span.

Write to Al Root at [email protected]