Tesla Permabull Asks: Are Near-Term Expectations Too High?
Tesla Motors Inc (NASDAQ: TSLA) released the company's quarterly earnings to much analyst chatter.
Morgan Stanley was among the voices heard, rating the company at Overweight with an attached price target of $333.
Morgan Stanley analysts Adam Jonas, Paresh Jain and Neel Mehta began, "4Q was in line on cash consumption while several hundred basis points ahead on auto gross margin. The FY outlook was higher than we expected in every key aspect from cash flow to margins and deliveries. Capex, opex and leasing (deferred revenue) activities are also running higher than we expected."
Related Link: Dougherty Is Buying Tesla, Emphasizes "Cash Is King" And "Show Me" Sentiment For 2016
The note then outlined five key takeaway points from Tesla's call:
1. "Well Done On Them" Quarter Ahead Of Expectations: "The quarter itself demonstrated stronger-than-expected underlying profitability despite significant manufacturing/productivity challenges," according to the analysts. The note highlighted the non-GAAP gross margin (excluding ZEV credits) came in at approximately 21–25 percent.
2. "Are Near-Term Expectations Too High?": Based on Tesla's targeted full-year volume of +60, the analysts posed hesitations, placing the +60 (80 percent) against analyst forecast of around 40 percent.
3. Ambitions To Disrupt: Morgan Stanley commented that Tesla's "higher levels of spending across the board in the quarter and for 2016" point toward a sector-disruptive mentality, "No sign that the company is slowing down any of its ambitious growth initiatives."
4. Hike In Penetration For Leasing/Residual Value: "While it is normal for cars in the premium segment to exhibit high levels of finance/leasing penetration, the pace of the increase appeared to step up substantially with deferred lease revenue at over 30 percent of total non-GAAP revenue in 4Q," according to the report.
5. "Some Hubris" On Musk's Part And Model X: "Tesla's CEO said the company put too many features into a single product at its first iteration. In hindsight, Tesla said it would have been better to have started production with fewer ambitious features in the cars and then roll out improvements over time," said Morgan Stanley. It's worth noting that Elon Musk was quoted as having said, "We're not sure anybody will make a car like this again... we're not sure Tesla will make a car like this again."
The analysts concluded, justifying the rating and price target as "offering more than 100 percent upside from the current price."
"While the range of valuation outcomes in our scenario analyses is very high, ranging from $50/share in a bear case to $413/share as a bull case, we believe the shares offer a superior risk-adjusted return relative to the average stock under our US auto coverage universe within a ‘Cautious' industry view," according to the report.
Latest Ratings for TSLA
Feb 2016 | Credit Suisse | Maintains | Outperform | |
Feb 2016 | UBS | Maintains | Sell | |
Feb 2016 | Barclays | Maintains | Underweight |
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