Tesla trounces earnings expectations. What’s next for the stock

Tesla may have just stopped traffic.

The electric auto maker reported its fourth straight quarter of profits on Wednesday, a big milestone for a company that had long been criticized for its cash burn. The second-quarter earnings results also beat analyst expectations on the top and bottom lines, with Tesla saying it still planned to deliver more than 500,000 new vehicles by the end of 2020 despite some production difficulties.

The report paves the way for Tesla to be included in the S&P 500 index, which requires companies to show a full year of GAAP profitability. The stock lost roughly 6% in Thursday trading.

Here’s what four market analysts made of the results:

‘A jaw-dropper’

Dan Ives, managing director of equity research at Wedbush Securities, said this was a best-case scenario for the bulls:

“This is a jaw-dropper in terms of the level of profits. I think it just shows the trajectory now. This really puts massive fuel in the tank of the bulls, and this is really an Aaron Judge-like home run quarter. Combined with the deliveries, this is a Teflon-like story. It’s all about China. I think that’s worth $400 a share. And I think now, a $2,000 bull case now could get hit given what we’re seeing on the bottom line. And it looks like [the] S&P 500 has a new member. … In China, I think profitability on those cars is 10%-15%, higher than in the U.S. and Europe, and they’ve cut some significant costs. And I think that’s really the big difference. That’s the fundamental driver here because it’s not just about the deliveries. It’s what you’re seeing from a profitability perspective. How quickly could they get the $20-$25 of earnings power? That’s the question. But … for a bull, this is sort of a best case in terms of what we saw on the profit side.”

‘Unhinged to the upside’

Mike Santoli, CNBC’s senior markets commentator, disagreed:

“To be honest with you, I don’t think you have a bull case if you’re only looking at the next 12 months because the stock has quadrupled this year while the deliveries for this year are static. They haven’t said they’re going to massively deliver more cars this year than we thought they were going to seven months ago. It’s much more about the larger future and the market share, ultimately, that [electric vehicles] and Tesla cars specifically can get, and then, of course, the longer-term story has to be autonomous driving and the software push that basically could transform the economics of this business. It really is, at a price of $1,600 a share, about that distant future, in my opinion. Five hundred thousand vehicles, what they’re talking about this year — way back a few years ago, that was supposed to be 2018’s total. They pushed it off to 2020. They’re going to do [it] in 2020. So, they’re delivering on it, and … people are focusing on the fact that they sold these regulatory credits and they have reduced expenses. The question is are they reducing just the investment in the business as opposed to just operating stuff? So, not to sort of drag on the company and its performance here, but it has to be viewed in the context of a stock that’s just gotten completely unhinged to the upside in the short term.”

‘Predictability around profitability’

Gene Munster, Loup Ventures’ managing partner, said after the report on Wednesday that Tesla’s story goes beyond its potential S&P 500 inclusion:

“Everyone was focused on [the] S&P 500, but I don’t think that’s the real story. The reason and the way that they got there is actually sustainable. Those tax credits are coming from other automotive companies that simply don’t have an ability to make EVs fast enough, and so, I think that’s the real takeaway here, is that this is not about just getting the S&P 500. This is about a company that is laying the framework for predictability around profitability. Hard to even imagine I’m saying that when we’re talking about the Tesla story, but I think that’s ultimately what’s driving the stock higher in after-hours [trading]. … What they’re doing is really driving efficiencies and driving lower price to ultimately drive market share, and I think that’s going to be the piece that’s going to surprise investors over the next several quarters.”

‘Be a buyer’

Steve Grasso, director of institutional sales at Stuart Frankel, said now is not the time to go against the stock:

“They had a fourth consecutive quarter of profitability. That’s what everyone was focused in on. The door is open and remains open for the S&P add. I think that’s what people are looking at. When you look at the stock, it’s overbought, but it runs overbought quite often and it works off an overbought [condition], which means a relative strength index reading of higher than 70. It’s at 72 currently. That is nothing for Tesla to be working off right now. So, I would say, deliveries? I wouldn’t worry about them. I wouldn’t worry about anything until you get to that level where they’re either included in the S&P index. I think that you have to be a buyer of this stock. You’re going to see them try and raise some cash here, raise some capital here. This price is unbelievable. It’s already run over every short that’s out there. Short interest went from 30 down to nothing. So, I would think that the S&P is going to be your ability to say, ‘Let me short the news’ at that point. But until then, the stock is higher.”


Published at Thu, 23 Jul 2020 18:11:06 +0000-Tesla trounces earnings expectations. What’s next for the stock

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