They’ve been making headlines in recent months, and for plenty of reason. The SPAC, or special acquisition company, is exactly what its name suggests: a company formed specifically to make an acquisition. In essence, a SPAC is a shell company, flush with funds, that is formed to seek a merger target. The target company is typically a small- to mid-cap player that wants to go public, but lacks cash. The SPAC provides the cash.
Wall Street analysts aren’t just commenting on the trend; they are looking at the new tickers entering the market, too, and publishing their ratings. Turning to the TipRanks database, we’ve pulled up the latest data on three such stocks that some of the analysts have tagged as potentially strong investments. Not to mention substantial upside potential is on the table. We are talking returns of at least 50% over the next 12 months.
NextGen Acquisition II (NGCA)
We’ll start with NextGen Acquisition II, a SPAC company that is likely to gain plenty of attention. The company is planning to merge with British billionaire Richard Branson’s space travel company, Virgin Orbit.
NGCA entered the trading markets in March of this year, raising $350 million in its IPO. In August, rumors became official: NGCA would conduct a merger with Virgin Orbit, creating a joint entity worth $3.7 billion. That total will include $483 million in new capital that NGCA will bring to Virgin Orbit, and create a new ticker, VORB, for the space launch company.
Virgin Orbit is part of Branson’s Virgin Group of enterprises. The company focuses on the insertion of small satellites - cubesats that use small size and off-the-shelf tech to keep prices down - into Earth’s orbit. The cubesats are carried by Virgin Orbit’s LauncherOne vehicle, which in turn is air launched from a modified Boeing 747 named Cosmic Girl. The company conducted the first successful LauncherOne satellite deployment in January of this year.
This impending SPAC, which is expected to close by the end of 2021, caught the attention of Benchmark’s Josh Sullivan. Sullivan sees Virgin Orbit’s unique launch system as a central point for investors.
"The key differentiator for VO is an extreme level of launch flexibility in timing and geographic location, all at lower cost. VO can turn any 747-ready runway into a launch pad in very short order. Traditional launch services rely on fixed launch infrastructure which is subject to delays and vulnerable to military action. Further, by launching from a 747-400 at 35,000 feet VO has executed ~30% of the mission before the rocket is even launched,” Sullivan noted.
The analyst summed up, “We believe VO is well positioned to consolidate the new space race. With industry leading cost dynamics for specialized launch orbits, VO has a key advantage for the largest hurdle to LEO space access."
The analyst is bullish on the prospects here, and rates NGCA a Buy. His $16 price target implies a one-year upside potential of 58%. (To watch Sullivan’s track record, click here)
SPACs don’t always get a lot of analyst attention – they tend to fly under the radar. Sullivan’s is the only review on record for this stock, which is currently priced at $10.1. (See NGCA stock analysis on TipRanks)
Decarbonization Plus Acquisition II (DCRN)
Carbon pollution is high on the agenda these days and implicated in climate change issues. The energy industry and the power utilities know where the wind is blowing and stand to gain by embracing emission reductions, and turning to cleaner tech. And that’s where DCRN and Tritium come in.
Decarbonization Plus Acquisition is a SPAC, formed for the purpose of merging with a clean-tech company. The company aims to merge with Tritium, a developer of direct current fast charging (DCFC) technology, a tech vital for the expansion of the electric vehicle (EV) market. Tritium’s product line includes a range of DC fast charging stations, suitable for a variety of uses, from commercial rental fleets to heavy industrial vehicles. The company even markets charging stations to retail locations, to reach customers who will want to charge their vehicles while shopping.
DCRN filed its plans to merge with Tritium at the end of last month. The SPAC brings a market cap of just over $500 million to the merger, which will create a combined entity with an estimated market value of $1.4 billion. The merged entity will trade on the NASDAQ, with the ticker symbol DCFC.
Among the bulls is Roth Capital’s 5-star analyst Craig Irwin, who rates DCRN a Buy and gives it an $18 price target. This figure reflects his belief in ~80% upside heading into next year. (To watch Irwin’s track record, click here)
Backing his stance, Irwin notes Tritium’s solid prospects going forward, as a potential leader in the charging market: “Tritium is one of the largest providers of direct current fast charging (DCFC) hardware for electric vehicle (EV) markets, with a comprehensive product line for consumer, fleet, and depot charging. Management estimates a 15% market share in North America, with 20% in Europe, and attributes strength to a 37% lower cost of ownership vs. peers due to its liquid-cooled systems. We believe the company's leadership position in DCFC hardware positions it for impressive growth…”
Irwin’s not the only one who’s noticed this SPAC on the way. There are 4 analyst reviews on file for DCRN and they all agree that it’s a stock to Buy, supporting the Strong Buy consensus rating. The shares are priced at $10.02 and the average target is $16, for ~60% one-year upside. (See DCRN stock analysis on TipRanks)
European Sustainable Growth Acquisition (EUSG)
We’ll wrap up with European Sustainable Growth Acquisition, a SPAC that entered the markets in January of this year. The company has a current market cap of $181 million, and is looking to merge with ADS-TEC Energy GmbH, a direct current fast charging company in the European market. The two companies made their plans official this past October.
ADS-TEC Energy has, in recent weeks, been moving to expand its footprint and market share, with an agreement to enter the charging market in Florida through a sale of 20 fast charging units to Smart City Capital as part of a plan to transition Miami Dade county into a renewable energy leader. The company also has plans to expand into Spain through an agreement with Wenea. Wenea is currently building out Spain’s largest network of EV charging points.
The upcoming business combination will create a joined entity called ADS-TEC Energy. The new company will have a pro-forma market value of approximately $580 million, with an additional $156 million coming from a PIPE investment secured by EUSG. The new ticker, to be ADSE, will remain on the NASDAQ.
We’ll check in again with Roth Capital's Craig Irwin, who writes, “We would be buyers for a unique solution melding storage and fast charging that addresses an infrastructure problem many have missed... We see the most compelling attribute of ads-tec’s products as the ability to amplify local DC fast charging capabilities for areas where the grid has insufficient power, leveraging the use of an integrated battery system and galvanic isolation of the charging system, so slow rate battery charging can continue even while the chargers are being used."
All of the above prompted Irwin to rate EUSE a Buy along with an $18 price target. This target conveys his confidence in EUSE's ability to climb ~80% from current levels. (See EUSG stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.