Workhorse’s loss of U.S. Postal Service contract may have legacy-Trump politics behind it, ‘shocked’ Cowen analyst says

Late in Tuesday’s trading session, Oshkosh Corp. OSK, +5.51% said its Oshkosh Defense subsidiary was awarded an “indefinite delivery, indefinite quantity” contract to help modernize the USPS’s delivery vehicle fleet, by supplying between 50,000 and 165,000 battery-electric vehicles (BEV) and fuel-efficient internal combustion engine (ICE) vehicles over a 10-year period.

“Shocked.”

That’s what Cowen analyst Jeffrey Osborne wrote in a note to clients. He kept the outperform rating he’s had on the stock for at least the past three years, but cut his stock price target to $18 from $25.

“While we were not modeling success in the USPS, we had anticipated Workhorse would play a role, especially given the administration’s stance around government fleets being zero emission,” Osborne wrote.

He acknowledged that Workhorse has had a “spotty” history of execution in the past, but said the company is now on much more of a solid financial footing.

Osborne said politics may have played a role in the USPS’s decision. That suggests there’s a possibility the award could change, or be split.

“Coming away with nothing is a surprise; however, we note we likely have political variables at play here — a legacy Trump holdover as postmaster general of the USPS (Louis DeJoy) and two politically sensitive states (Wisconsin for Oshkosh and Ohio for Workhorse),” Osborne wrote.

Workhorse said Wednesday it asked the USPS for “additional information” about the contract award, and plans to “explore all avenues that are available to non-awarded finalists in a government bidding process.”

Cowen’s Osborne said there may be “political intervention” from the Biden administration, given that the decision goes against President Joe Biden’s late-January executive order, in which federal agencies were directed to procure carbon pollution-free electricity and clean, zero-emission vehicles.

Meanwhile, Oppenheimer’s Colin Rusch downgraded Workhorse to perform from outperform. Rusch removed his $29 stock price target, which had tied him with R.F. Lafferty’s Jaime Perez to be the most bullish analyst on Wall Street, according to FactSet data.

“Given [Workhorse] missing the U.S. Postal Service contract entirely, and facing a choppy supply chain situation due to COVID-19-related headwinds, we are stepping to the sidelines,” Rusch wrote in a note to clients.

He said that while the company’s C1000 EVs has “compelling” total-cost-of ownership (TCO) characteristics, and although the company has a backlog of about 8,000 vehicles, Rusch said “estimates need to move lower” as USPS expectations are removed. He expects earnings before interest, taxes, depreciation and amortization (Ebitda) to turn positive in 2023, a year later than previously projected.

In contrast, shares of Oshkosh shot up 5.8% into record territory, after rallying 6.1% on Tuesday after the contract win.

Raymond James analyst Felix Boeschen reiterated his outperform rating on Oshkosh while raising his price target to $125 from $100. He believes the USPS will ultimately need to buy toward the high end of its 160,000-vehicle range to adequately meet capacity needs.

“We see [Oshkosh] in the drivers seat to absorb those, though suspect exact volumes will be influenced by EV execution,” Boeschen wrote.

Jefferies’ Stephen Volkmann, who upgraded Oshkosh to buy from hold last week, said that while financial details of the USPS contract are scarce, he expects it to add at least 25 cents to earnings per share per year for the next 10 to 20 years.

“The contract lowers [Oshkosh’s] Defense mix and increases EV exposure, both positive for valuation, in our view,” Volkmann wrote.

Workhorse’s stock has tumbled 45.0% over the past three months, while Oshkosh shares have rallied 33.5% and the S&P 500 index SPX, +0.82% has gained 7.7%.