EVgo has been upgraded to a ‘Buy’ rating by analysts at UBS after the electric vehicle (EV) fast charging network provider received a $1.05 billion loan conditional commitment from the Department of Energy (DOE).
They also upped their price target on the stock to $8.50 from $4, which implies upside of about 20% from EVgo’s share price at the time of writing.
UBS expects the DOE funding will enable EVgo to increase annual stall deployments to 1,500 plus, compared to the current run rate of 800 to 900.
This, in turn, will support faster adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) growth as its general and administrative expenses will be spread across a larger network.
The analysts, despite continued network growth, see utilization rates remaining “relatively robust” as DCFC port additions have not kept up with new EV sales.
They estimate that EVs per DCFC port will increase to 98 in the third quarter of 2024 from 88 as of the year-end of 2022.
“We estimate EVs per port remaining in the high 90s through to the year-end of 2026 supporting higher utilization levels on EVgo's network,” they wrote.
“We believe that utilization at this level is supportive of adjusted EBITDA breakeven for EVgo.”
The analysts noted that while their base case is that the DOE loan reaches a final close in the first quarter of 2025, failure to close the loan is a “significant risk” to their optimistic outlook.
“However, we believe this risk is mitigated by the well-established nature of DCFC charging technology and distributed nature of the investment across EVGO's network,” they wrote.
“Importantly, we do not expect EVGO to need to raise new equity to close the loan.”
Analysts also see the decreased odds of a Republican sweep in the upcoming US election further de-risking the outlook for EVgo.