REE Automotive EV platform
Source: REE Automotive

REE Automotive (REE) Stock Is a Good Buy After VCVC Merger Approval

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Jul. 22 2021, Published 8:07 a.m. ET

Israeli EV startup REE Automotive (REE) is going public via a SPAC merger with 10X Capital Venture Acquisition (VCVC). The deal, which gives REE an implied pro forma equity value of approximately $3.58 billion, is about to close. What's REE's stock forecast after the VCVC SPAC merger? Is the stock a good buy now?

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REE manufactures products like REEBoard, which is a fully-flat and modular platform that can be used for autonomous vehicles. Upon closing, VCVC public shareholders and sponsors will own 7.8 percent of REE, while PIPE (private investment in public equity) investors will own 8.4 percent.

ree automotive stock forecast after vcvc merger
Source: REE Automotive
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The VCVC and REE merger date

The merger was approved by VCVC shareholders on July 21. The transaction is expected to close immediately. REE’s Class A common stock and warrants will start trading on Nasdaq under the ticker symbols “REE” and “REEAW,” respectively.

REE’s stock forecast

Currently, VCVC stock is being tracked by just one Wall Street analyst. The analyst has given the stock a buy rating and a target price of $15. This suggests a 46 percent upside potential from the current price.

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ree automotive stock forecast after vcvc merger
Source: REE Automotive

Is REE stock undervalued?

Based on VCVC’s current price, REE has an enterprise value of $3.2 billion. Based on this value and REE’s projected total revenue, its valuation multiples for 2023 and 2024 are 10.7x and 1.2x, respectively. Since REE is a growth stock, the company’s 2025 EV-to-sales multiple of 0.6x looks much more attractive.

Considering that peers Nikola and Hyliion Holdings are trading at NTM EV-to-sales multiples of 117.7x and 154.6x, respectively, REE looks undervalued.

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REE stock is a good long-term investment.

VCVC stock’s 38 percent pullback from the 52-week high has opened a discount entry opportunity to REE, which has bright growth prospects. REE develops EV platforms that can be used to build several different types of vehicles. The company’s products are fully flat and modular, which means that the components can be assembled to support vehicles of several different sizes and shapes. In 2023, REE plans to start mass production of its platforms.

REE expects to generate sales of $0.3 billion in 2023 and forecasts its sales growing by 800 percent in 2024. In 2025, the company projects revenue of $5.7 billion and an attractive gross margin of 31 percent. It also expects to turn EBITDA positive in 2024 and foresees an EBITDA of $904 million in 2025. REE said that it has an order book for more than 250,000 platforms, which accounts for 27 percent of its cumulative projected revenue of $19.1 billion by 2026.

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As part of its merger with VCVC, REE will receive around $500 million in gross cash proceeds to pursue its growth plans. The amount includes about $200 million in cash held by VCVC in trust and an additional $300 million in PIPE at $10 per share. The PIPE investors include Koch Strategic Platforms, Indian truck manufacturer Mahindra & Mahindra, and Magna International.

What happens to VCVC stock after the merger?

VCVC stock will immediately convert to REE stock after the deal closes. As a result, VCVC investors will become shareholders in REE.

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