Sell Joby's stock, analyst says, as recent 'overblown' rally reflects short covering

By Tomi Kilgore

JPMorgan's William Peterson turns bearish on eVTOL company, saying the record rally last month wasn't based on improving fundamentals

Shares of Joby Aviation Inc. were suffering their worst day in two years Wednesday after JPMorgan's William Peterson recommended that investors sell, saying the record gains seen last month did not reflect fundamentals.

Peterson cut his rating on the electric vertical-takeoff-and-landing (eVTOL) company's (JOBY) stock to underweight, after being at neutral for the past 15 months. He raised his price target to $6 from $5, but the new target still implied 29.5% downside from current levels.

The stock sank 15.5% in midday trading, putting it on track for the biggest one-day drop since it tumbled 15.6% on Aug. 12, 2021. It has still more than doubled over the past three months, rising 105.9% while the S&P 500 has tacked on 10.0%.

The downgrade comes after the stock rocketed by a one-day record 40.2% on June 28, after the company received approval from U.S. regulators for test flights of its eVTOL aircraft. That helped propel the stock to an 82.6% gain in June, which was a monthly record.

"We think this market reaction was largely overblown and a reflection of significant short covering and retail flows rather than improved fundamentals, given that this announcement is an implied part of the overall certification plan," Peterson wrote in a note to clients.

He acknowledged that the path to certification has been "de-risked," which led him to adjust his valuation metrics, which prompted a raised stock-price target.

While Joby is a "first mover" and has been working on eVTOL longer than any other publicly traded rival and is well-positioned to succeed in the space, the stock is overvalued relative to its peers, he said.

Joby was founded in 2009, and went public on Aug. 11, 2021 after completing the merger with special purpose acquisition company (SPAC) Reinvent Technology Partners.

Of the seven analysts surveyed by FactSet, Peterson is now one of only two who are bearish, while two are neutral and three are bullish.

Looking at other eVTOL companies, Peterson is bullish on Archer Aviation Inc. (ACHR) and neutral on Lilium NV (LILM).

He said Archer is "neck and neck" with Joby in terms of the certification process but is undervalued relative to Joby's stock. And he said that while Lilium has recently raised capital to fund operations, the company has more technical and certification risk than Joby or Archer.

-Tomi Kilgore

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07-19-23 1224ET

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