By Claudia Assis
Tesla 'met or exceeded investor expectations'
Tesla Inc.'s blowout quarterly earnings seemed to unite bulls and bears at least for Thursday, although worries about the stock's valuation and quality of the beat persisted.
The Silicon Valley electric-vehicle maker (TSLA) late Wednesday topped Wall Street expectations for its third quarter, reporting a fifth straight period of both net and adjusted profit, and sales that rose 40%.
Chief Executive Elon Musk called the quarter the company's "best in history" and said he has never "felt more optimistic about the future of Tesla than I do today." ()
Tesla also kept its goal of selling about half a million vehicles in 2020, implying deliveries of about 181,000 vehicles in the fourth quarter.
"Tesla management projected a confident, growth-focused tone and nearly doubled its annual capex outlook" to between $4.5 billion and $6.0 billion, Toni Sacconaghi with Bernstein said in his note.
Sacconaghi kept his rating on the stock at the equivalent of sell, worrying about the pace of future growth and stock valuation. Tesla shares have quintupled this year, compared with gains around 6% for the S&P 500 index.
"While calling's Tesla's stock direction near-term is a fool's game, we do believe that at some point valuation matters," he said. "Given high expectations, we worry about any market rotation to value; market demand in 2020; the impact of forthcoming EV competition to investor sentiment (and) whether Tesla can roll out enough new models (invariably at lower price points) to sustain 30%-50% growth for several more years."
See also:Opinion: Tesla plays smoke and mirrors with profits again ()
Mark Delaney at Goldman Sachs also praised Tesla's margins and said investor debate will move toward 2021 sales, wider release of new iterations of Autopilot, Tesla's suite of advanced driver-assistance systems, and concerns about the stock's valuation.
Also read: Tesla is a 'must own' stock, says Wall Street analyst who returns to bullish stance after start-of-year downgrade ().
During a call to discuss results after earnings, one analyst conjectured that the company could sell between 840,000 and 1 million vehicles in 2021, to which Musk responded that next year's sales could be "in that vicinity" and that the analyst was "not far off." Tesla is expected to provide an official 2021 sales guidance when it reports fourth-quarter results early next year.
"We believe that Tesla met or exceeded investor expectations for key items," Delaney said, calling the quarter "strong" due to margins as well as free cash flow.
"While bears may point to the large contribution from regulatory credit sales in the quarter...we'd note that automotive gross margin excluding credits was still strong, which we view as a good sign of the underlying profit potential for the company. "
Goldman kept its neutral rating on the stock and upped its 12-month price target to $455 from $450, representing an upside around 6% over Thursday prices and compared with an average price target of $360, according to FactSet.
See also: Tesla upgraded at JMP Securities on margin expectations ().
Jeffrey Osborne at Cowen went deeper on the criticism of Tesla's reliance on regulatory credits, money Tesla makes by selling credits to other auto makers that don't manufacture enough "green" cars to meet federal standards.
Excluding the credits, Tesla has posted four consecutive quarters of net losses, he said in a note.
"We believe this is worth highlighting given several OEMs are focused on advancing their EV platforms," Osborne said. "As the competitive environment intensifies and other OEMs produce their own credits, we see the appetite and pricing of these regulatory credits likely waning (i.e. GM announcing its Hummer EV () earlier this week."
Joseph Spak at RBC Capital zeroed in on the credits as well.
"Bears will argue this is unsustainable and shouldn't be capitalized. But bulls may rightly counter that this can persist until more competition present, and has helped fund (Tesla's) development which could help (Tesla) maintain an advantage into the outer- years," he said.
-By Claudia Assis; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
October 22, 2020 12:18 ET (16:18 GMT)
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