Citi took a more cautious stance on Ouster ( NYSE: OUST ) as its merger with Velodyne Lidar ( NASDAQ: VLDR ) shifts the investment story.
The bank’s analysts downgraded the stock from Buy to Neutral on Wednesday, explaining that the proposed merger is “sensible” but raises questions on organic growth. The stock was also assigned a “high risk” label as well.
“While we’re not necessarily bearish on the combination, we do feel that it meaningfully alters the Ouster investment thesis from here,” the downgrade note read. “To that point, Ouster’s lack of backlog visibility in its recent Q3 results also raises some questions around non-auto end market demand and market share. Combined, these factors serve to reduce our confidence in the original LT thesis at a time when the macro environment & FCF burn rate are also increasing funding-related risks.”
While the analysts acknowledged that criticism of the downgrade is likely to take the stance that the combination with Velodyne “might ultimately yield a far stronger LiDAR player” and spark growth in the long term. This pushback is considered fair, but a lack of visibility toward that end makes the sidelines the best place to position oneself, according to Citi.
Read more on Velodyne’s latest earnings results .
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Ouster cut to Neutral at Citi amid Velodyne merger