Rivian Automotive Inc (NASDAQ:RIVN) shares opened 4% higher on Tuesday after UBS upgraded its rating on the electric vehicle (EV) maker to 'buy' from 'neutral', citing an improved outlook for the business.
The investment bank has also revised its 12-month price target for the company to $24, slightly down from its previous estimate of $26. Rivian's shares opened 3.2% higher at $19.42 following the announcement.
Improved risk/reward profile
UBS's upgrade comes on the heels of Rivian's recent capital raise and market sell-off, which, according to the bank, has resulted in a more favourable risk/reward scenario for investors over the next 12 months.
Its stock has declined around 20% since October 4, underperforming the S&P 500, which has seen a modest gain of around 1.4% over the same period.
Rivian recently issued a $1.5 billion green convertible note with an initial conversion price of $23.29 and an interest rate of 3.625%. This move has led UBS to believe that the likelihood of an additional capital raise in the near term is reduced, with the company likely not requiring further capital until the end of 2025.
Financial health and production outlook
UBS had initially estimated that Rivian would need approximately $5 billion in capital to fund its future growth.
However, with the recent capital raise, the bank now forecasts the remaining $3.5 billion to be raised in the fourth quarter of 2025. This represents a two-quarter delay compared to their prior forecast.
On the production front, UBS is optimistic, projecting 2023 production figures of approximately 54,500 vehicles, slightly above Rivian's own guidance of 52,000. The bank also anticipates a potential upward revision of these figures with the forthcoming earnings release.
At 9.33 am, the shares were changing hands for $19.52, up 74 cents.