Elon Musk is maybe the next Steve Jobs. Elon Musk is maybe the next Henry Ford. Elon Musk is maybe the next… Maytag Repairman?
That's how Goldman Sachs analyst Patrick Archambault is looking at the founder of Tesla. That isn't to say he thinks Musk will be as lonely as the Maytag Repairman. Rather, Goldman believes Tesla may be viewed in the future as disruptive technology, revolutionary mass-produced vehicle, or transformative consumer product.
But, those are only three possibilities out of five, according to Goldman. The other two is the company will continue as they previously expected or else fail. Assigning weights to all five possibilities and projecting results for the next ten years in each scenario gets Goldman to value Tesla's automotive business at $180 per share.
In a March 18 note, Goldman's Archambault writes:
"If Tesla’s auto business were to be truly disruptive (to the whole auto industry, not just luxury vehicles), then there would be considerable upside. Keying off the history of the iPhone, (adjusting for the replacement cycle) would imply 3.1mn units by 2025 and a PV [present value] of $442 per share. The Model-T trajectory implies 3.3mn units and $478 per share; and the volume implied by a basket of transformative durable goods (laundry appliances/dishwashers/refrigerators) gets us 1.8mn units and $329 per share. However, this is offset by our base case (broadly unchanged from our previous forecast) and a downside case where Tesla’s present value is lower and hence we arrive at probability weighted share price of $180 for the auto business alone."
On top of that $180, Goldman also values the company's battery business – future "gigafactory" and all – at $20. That leaves a price target for Tesla at $200 for the next six months.
Sure, $200 is up from the $170 target Goldman had before. But, that's still $37 lower than where it traded. Goldman rates the stock as a neutral.
Jim Cramer calls Goldman's report "hilarious" and believes only one scenario is most likely. "Tesla's the new Apple," says Cramer on CNBC's Squawk on The Street.
While CNBC contributor Andrew Busch, editor and publisher of The Busch Update, thinks Tesla is an innovative company, he's not quite sure it can be compared with Apple.
"I don't know if they're quite the Apple of the next generation," says Busch. "Clearly, they don't have the same platform and broad distribution."
Tesla makes a very high-end automobile while Apple makes an assortment of consumer technology products. Instead, Busch is enthusiastic about Tesla's ability to consistently beat earnings estimates. Last month, the company reported 2013 fourth-quarter earnings of $0.33 per share versus and Wall Street's anticipated $0.21.
"That's what you look for in a stock," says Busch. "As long as they keep doing that – keep increasing their sales, keep making technological improvements and advances –keep buying them. And, until they stop that cycle – until they miss – then I wouldn't sell the stock just yet."
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes the stock's volatile technicals match the fundamentals for Tesla.
"The chart is very similar to the fundamental story, which is that it's quite controversial at these levels," says Ross. "It's very easy to call the stock the next Apple or to call it a disrupter. But this is a stock that trades on potential and that potential can be your best friend or your worst enemy."
After building a base of support since last autumn, the stock broke above resistance, according to Ross' charts. Sure enough, that level was around the $200 per share. At the beginning of this month, Ross' Tesla's chart shows the stock in a flag formation, which is generally the prelude to bullish move. Yet Ross urges some caution.
"Flags have failed before," says Ross "Given that phenomenal rise over the past few months, you have to [take] it with a grain of salt. I could see a test of that breakpoint around $200 a share. A break below $200 would be a clear sell signal."
Ross thinks those who are inclined to buy can do so at current levels provided they do so in moderation.
"If you like the story, if you like the potential, if you think it's the next Apple like Mr. Cramer," says Ross, "you can buy the stock here. But, just adjust your position size accordingly. There's a lot of risk but also a lot of reward. Keep the position small and just keep your expectations in check. This is about the future."
As well, Busch thinks the Tesla's stock will trade in range of 15% above and below the $200 per share level. With such large swings, Busch also doesn’t believe investors should invest a huge portion of their portfolio on the company.
"Keep a small position," says Busch. "Don't overload on this thing because it's so volatile."
To see the full discussion on Tesla with Busch on the fundamentals and Ross on the technicals, watch the video above.
- Investment & Company Information
- Goldman Sachs
- Elon Musk