The Ratings Game: Here’s the big problem some analysts have with Tesla’s results

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    The early verdict on Tesla Motors Inc. earnings was still out on Thursday, but for some analysts, the so-called best moment in the electric car’s history leaves something to be desired.

    Tesla TSLA, -0.05%  Chief Executive Officer Elon Musk on Wednesday called the third-quarter results, which included the second-only quarterly profit in the company’s history and better-than-expected revenue. He added that the fourth would be “great as well.”

    Wall Street seemed to be buying that view, pushing shares up 4% in premarket trade Thursday.

    Read: Riding high on profit, Tesla’s Elon Musk promises much, trash-talks everyone

    Among the first to weigh in were Pacific Crest analysts Brad Erickson and Ellion Amson, who kept their sector weight rating on Tesla, and offered up a less-cheery view on what they saw from the results.

    “We continue to struggle with the sustainability of demand for the S and X and need more confidence in Model 3 execution risk before becoming more constructive on shares,” they said.

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    Tesla reported its strongest quarter ever for the Model X, which likely did some heavy lifting on sales owing to its cost. Tesla delivered 16,047 Model S cars and 8,774 Model X’s in the third quarter, maintaining that it will deliver a total of 50,000 cars in the second half of the year.

    Based on their own checks, Pacific Crest analysts said the Model X appears to be “lagging expectations.” They noted that over the past three quarters, Model S deliveries have lagged behind order rates quoted by the company. Meanwhile, production run-rates and delivery timings haven’t changed.

    “This means either Model X’s quarterly run-rate peaked at 8,700 cars per quarter, or the Model S is going to be down double-digits y/y in Q4,” said Pacific Crest.

    They rattled off a laundry list of reasons why they won’t turn positive on Tesla—outside of demand and execution challenges for the Model S, they say it’s completely unclear whether solar-power installer SolarCity SCTY, +1.37%  can be a solvent entity going forward. Musk told investors Wednesday that SolarCity could be a cash contributor in the fourth quarter “in a small way.”

    From RBC Capital Markets, Joseph Spak and Jacob Hughes lifted their price target on Tesla to $220 from $210, but kept a sector-perform rating, saying the quarter should inspire confidence among the bulls that underlying performance is seeing an improvement. However, they added, there was “little to change the narrative bears express over Model 3 ramp and SCTY (SolarCity) concerns.”

    The glass-is-half-full-view: On a more positive note, Ben Kallo, senior research analyst at Baird, reiterated his outperform rating and $338-per-share price target. He said Tesla’s beat on third-quarter results with strong gross margin was a plus for him, as it showed improved operational efficiency, and management confirmed battery production and Model 3 volume production are running on time.

    Kallo was also inspired by Musk’s comments that a capital raise may not be needed for the ramp up of the Model 3.

    The Baird analyst is looking at several catalysts to drive shares higher, including the Oct. 28 Tesla/SolarCity solar roof release and more information expected about the combined company, due Nov. 1. Also, a vote on the SolarCity/Tesla merger is scheduled for Nov. 17, and on Jan. 4, a tour of Tesla’s Gigafactory, a lithium-ion battery plant, will be held in Reno.

    There was no gloom either from Global Equities Research’s Trip Chowdhry, who reiterated his overweight rating and $385 per-share price target on Tesla.

    The company, he said, delivered 24,500 cars in the third quarter, a 111% jump on the 11,603 delivered in the same period a year ago. That’s “way ahead of our most optimistic estimate of 22,000 deliveries – a phenomenal execution on all fronts,” said Chowdhry.

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