'Still highly overvalued': Here's what 8 Wall Street analysts are saying about Tesla's blockbuster earnings report
- Tesla reported second-quarter earnings on Wednesday that beat
Wall Street expectations. - Shares of the Elon Musk-led automaker jumped as much as 6% on Thursday before paring some gains.
- Still, Wall Street has a largely bearish view of the company. Here's what eight analysts said about
Tesla following its earnings report. - Watch Tesla trade live on Markets Insider.
- Read more on Business Insider.
Tesla on Wednesday reported second-quarter earnings that beat Wall Street expectations and showed the fourth consecutive quarterly profit for the company, a key milestone for inclusion in the S&P 500.
Shares of Tesla jumped as much as 6% on Thursday before paring some gains. Tesla has surged more than 280% year-to-date.
Here are the key numbers:
- Earnings per share (adjusted): $2.18 versus an expected loss of $0.15
- Revenue: $6.04 billion versus an expected $5.2 billion
Read more: Bernstein says buy these 13 dividend-rich stocks built to capitalize on a trend not seen in 65 years
In addition to beating expectations for earnings per share and revenue, Tesla reported solid GAAP gross margins of 20%, one of the reasons Daniel Ives, a Wedbush analyst, boosted his bull-case target on the automaker to $2,500.
The combination of margins and Tesla's reported adjusted EBITDA of $1.2 billion "speaks to a business model which continues to have significantly lower costs and more production efficiency even in the face of challenging circumstances globally given COVID-19," Ives wrote in a note on Thursday.
Tesla said it would build three factories on three continents later in the year. On an earnings conference call, Tesla said it would build its $1 billion Cybertruck factory in Austin, Texas.
Still, Wall Street is largely skeptical of the automaker: Seven analysts have "buy" ratings, while 15 have "hold" ratings and 14 say to "sell," according to Bloomberg data.
Here's what eight analysts had to say about Tesla following the company's second-quarter earnings release:
1. JPMorgan: "Still highly overvalued."
Price target: $325
Rating: Underweight
"Tesla shares traded higher in the aftermarket Wednesday on an ostensibly sharp earnings beat; a closer look, however, reveals that while results were genuinely better amidst a challenging macro backdrop, fully 87% of the magnitude of the operating income beat vs. consensus was driven by much higher than expected regulatory credit sales, which tend to be lumpy and are expected to decline over time," analysts led by Ryan Brinkman wrote in a note Thursday.
"As more and more automakers develop and market their own electric vehicles, we expect the need to purchase such credits from Tesla will decline over time," they said.
"Despite the modestly better 2Q, TSLA shares still highly overvalued, as evidenced by comparisons to industry leaders Toyota & VW which are together valued less than Tesla," the analysts said, adding that Toyota and Volkswagen combined not only sold more vehicles than Tesla in 2019 but generated more EBIT.
2. Morgan Stanley: "Investors are now left with a conundrum."
Price target: $740
Rating: Underweight
"Dramatically thesis changing for bulls? Not particularly ... but very impressive nonetheless," Adam Jonas wrote on Wednesday. "Investors are now left with a conundrum of two forces: (a) does this outstanding 2Q result make the stock even easier to own ... or (b) does it market a 'top' where it may be best time to sell?"
Still, Morgan Stanley remains underweight. "Our long-term concerns around sustainability of profit in China, poor auto industry fundamentals, and what we believe to be inevitable competition in EVs and AVs from a host of well capitalized tech firms (AMZN, AAPL, GOOGL, etc.) and OEMs are just not seen by the market," Jonas wrote.
"We think the stock has run to a market capitalization of $300 billion too quickly and has discounted years of growth."
3. Bank of America: "Stock price is detached from current fundamentals."
Price target: $800
Rating: Underperform
"While TSLA's 2Q:20 results came in better than most expectations, we believe this is more than reflected in the ~300% run-up in TSLA stock YTD," analysts led by John Murphy wrote in a note on Wednesday.
"In fact, we view the upward spiral of TSLA stock as more driven by the stock itself rather than fundamentals, as the higher the stock goes, the cheaper funding gets to support outsized growth, which is then rewarded by investors in the form of a higher stock price."
"The current ~$1,600+ stock price is detached from current fundamentals, and rather reflects a view that TSLA could access effectively no-cost (equity) capital to fund future growth. In our view it is this self-fulfilling framework that appears to explain the extreme moves in TSLA stock, both to the upside."
4. RBC Capital Markets: "Fundamentally overvalued."
Price target: $850 from $765
Rating: Underperform
"We believe TSLA fundamentally overvalued with ~35% 10-year FCF CAGR required to justify current levels, never mind further appreciation," Joseph Spak wrote on Wednesday. "That's a high bar for manufacturer even before Elon stating not trying to be 'super profitable.'"
Spak also said Tesla was "once again aided by credits," adding that it "would not have become S&P500 eligible without this lever."
"To wit, TSLA just completed 4 consecutive qtrs of GAAP NI totaling $368mm," Spak said. "Credits (which are all margin) over that same time frame ~$1.05bn. Even comparing the credits to LTM GAAP op. income, credits were ~85% of that figure."
5. Goldman Sachs: "We are still uncertain about how the stock will trade."
Price target: $1,475
Rating: Neutral
"We maintain our Neutral rating on TSLA shares, in part due to valuation and in part given that we believe risks for 2H20 deliveries remain in the current operational/macroeconomic environment," analysts led by Mark Delaney wrote in a Thursday note.
"While we believe that Tesla met or in the case of FCF exceeded investor expectations for the report, we are still uncertain about how the stock will trade as we believe strong results were generally expected by the market, and the stock significantly outperformed in the month leading up to the report."
6. Deutsche Bank: "Tesla continues to outperform investor expectations."
Price target: $1,500 from $1,000
Rating: Hold
"Tesla continues to outperform investor expectations, with both of its launches this year (China Model 3 and Model Y) running ahead of schedule on volumes and profitability," Emmanuel Rosner wrote in a Thursday note.
Investors will now turn their focus to Tesla's potential S&P 500 inclusion and upcoming Battery Day, "where the company could demonstrate great improvements in technology and large capacity additions, growing its lead versus potential
"
7. Canaccord Genuity: "Momentum looks to continue unabated."
Price target: $1,623 from $650
Rating: Hold
"TSLA momentum looks to continue unabated," Jed Dorsheimer wrote in a Thursday note. "We see three key factors to drive sentiment higher: 1) battery day and fundamental technology announcements (anticipated in Sept); 2) semi and cybertruck datapoints; and 3) profitable energy BU heading into wildfire/ hurricane season.
"Access to resources is the key for breakout technologies. To this end, we see TSLA's momentum with retail and passive funds with the possibility of being added to the S&P 500 as only increasing resource access for TSLA, which is key to maintaining a lead in new category/ technology."
8. Piper Sandler: "TSLA deserves 'must own' status."
Price target: $2,400 from $2,322
Rating: Overweight
"We still think TSLA deserves 'must own' status following today's results," Alexander Potter wrote in a Wednesday note.
"It's true that the company benefited from a high amount of credit-related revenue in the quarter ($428M), and as a result, margins were higher than they otherwise would have been. S&P 500 eligibility, which now looks assured, likely wouldn't have been possible without credit related revenue," Potter wrote.
"But with COVID-19 forcing Tesla to shutter its main factory for nearly half of Q2, we think it is undeniably impressive that the company may still exceed 500k deliveries in 2020 (in line with guidance at the beginning of the year). With market share inflecting and self-driving roll-outs on the horizon, we can't envision selling TSLA now."
Next Story
India is an oasis of growth amid a slower global economic landscape, witnessing a once-in-a-generation growth: G20 Sherpa Amitabh Kant
Mutual fund stake in NSE-listed cos at all time high; FPIs at 11-yr low
Gold prices today: Yellow metal climbs Rs 230 while silver jumps Rs 700
Indegene IPO: Company details to risk factors, all you need to know
Indegene IPO subscribed 1.67 times on Day 1 of offer
