Tesla Inc.s sizable earnings beat prompted some humility from skeptics and is drawing effusive praise from the bull camp.
Tesla TSLA, +10.30% shares rallied more than 12% late Wednesday after the company reported better-than-expected fourth-quarter earnings and gave investors more confidence in the companys cash-flow position. The stock was headed for another record close on Thursday trading.
Tesla executives also sounded upbeat about the year ahead as the company sets out to sell upwards of 500,000 vehicles in 2020.
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Baird analyst Ben Kallo began his note to clients by acknowledging Chief Executive Elon Musks assertion that a lot of retail investors actually have a deeper and more accurate insights than many of the big institutional investors and certainly a better insight than many of the analysts, which came during Teslas earnings call.
Given our decision to downgrade when shares were ~$150 lower, we accept the criticism, wrote Kallo, who has a neutral rating on the stock and raised his price target to $650 from $525. He flagged some positive takeaways from the results and conference call, including the factor that China isnt hurting Teslas margins as much as he once thought, but noted that hes looking for a more constructive entry point following the stocks massive recent rally.
Tesla shares have added 54% over the past month and 109% in the last 12 months, as the S&P 500 SPX, +0.31% has increased 1.2% and 21%, respectively, over one- and 12-month spans. The stock was poised for another record close Thursday, which would be its 17th since mid-December, and set an intraday record of $650.88 earlier in the trading session.
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RBC Capital Markets analyst Joseph Spak wrote that some of his assumptions on Tesla were misguided, though he kept an underperform rating on the stock.
We fully admit things are better than we expected and there is a lot of positive news flow and data points going Teslas way, Spak wrote in a note to clients. Highlights from the report included Teslas commentary about increased production capacity and an earlier time frame for Model Y deliveries, but downsides included indications that Shanghai Model 3 production may not have a better margin profile than California production.
Though Spak tweaked his Tesla model to a probability-weighted target and increased his price target to $530 from $315, he still sees the stock as overvalued in his base case.
J.P. Morgans Ryan Brinkman acknowledged that Tesla made progress last year, notably with free-cash flow, but he maintained that the stocks valuation is increasingly disjointed from the fundamentals given its big run up and the reaction to Wednesdays results.
Thats right: for all the talk of a breakout quarter for a hyper-growth company rightfully trading at 96x forward consensus EPS, Tesla in 4Q grew revenue just +2% year over year (despite deliveries +23%) while growing non-GAAP net income just +12% and EPS just +7% (given dilution), wrote Brinkman, who kept his underweight rating on the stock while lifting his price target to $260 from $240. The new target is almost 60% below Teslas current stock price.
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For bulls, however, the report was an opportunity for a victory lap.
Its becoming clear, in our view, that Tesla is on a path toward becoming the worlds only relevant publicly listed auto maker, wrote Piper Sandlers Alexander Potter.
Potter is impressed by Teslas continued frugality, which prompted him to cut his capital-expenditure forecast. We are also giving Tesla more credit for operating leverage, because even after this quarters q/q increase in spending, Teslas thriftiness continues to impress. Demand, according to Potter is a non-issue as the company prepares for new products and apparently, an overwhelming number of Cybertruck orders.
He has an overweight rating on Tesla shares and took his price target up to $729 from $553.
Canaccord Genuitys Jed Dorsheimer said that the biggest near-term risk for Tesla is its expectation for a one- to one-and-a-half week delay in the ramp of Shanghai Model 3 production due to the coronavirus outbreak.
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Given the numerous positive data points that were discussed and the cornerstone of continued profitability and (free-cash flow) generation, we view the company as solidly positioned as the leader of the EV revolution, he wrote. Dorsheimer rates the stock a buy while lifting his target to $750 from $515.
Wedbush analyst Daniel Ives did not hold back in his praise for the company, even though he remains on the sidelines. Last night completes a comeback story for the ages from the dark days seen last April, with clear momentum around global electric-vehicle demand inflection heading into 2020 and beyond with Tesla leading the charge, he wrote.
Ives expects Teslas bull party to continue as Shanghai demand looks very strong. He was encouraged by the companys 22.5% automotive gross margin, which he said was extremely impressive on the heels of the lower-margin Model 3 shift.
He raised his target on Teslas stock to $710 from $550, while keeping a neutral rating. Still, Ives said a run up to $1,000 is within the realm of possibility.
In our opinion, the new long-term bull case scenario on the stock is $1,000 with Teslas ability to ramp production and demand in the key China region during the course of 2020/2021 a major swing factor on the stock and $20 of earnings power by 2024, Ives wrote.
Staff writer Claudia Assis contributed to this report.
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