Tesla’s Impressive Quarter: What Wall Street’s Saying

Several analysts raised their price target on Tesla’s shares, but the stock continues to divide observers.

Despite posting strong fourth quarter results in which it beat both earnings and revenue estimates and projected robust vehicle deliveries for the year, Tesla  (TSLA) - Get Report continues to divide both analysts and investors.

Bulls say Tesla is well on its way to becoming a sustainable, mass-market vehicle maker, while bears point to its meager profitability so far and record-high stock price.

Tesla shares were rising 10.4% to $641.65 on Thursday morning.

Here’s what analysts said about its most recent quarter:

Needham (Underperform, No Price Target)

“Coming off of record deliveries, Tesla ended the 4Q with its 2nd consecutive profit. Moreover, it announced its ambitious goal of delivering 500K vehicles in CY20, implying 36% growth over its 367K shipments in CY19. This goal is highly dependent on robust Model Y production in Fremont and a ramp in Model 3 production at Gigafactory Shanghai. While TSLA has begun to show signs of profitability, we struggle with the recent run-up in the shares. Revenue growth actually decelerated in 2019 to 14.5% vs. 82.5% last year, and net income was only $36MM for the year. We have not yet seen an inflection point in gross margins either. We believe the valuation of 85x our new '21 EPS estimate is unwarranted given the slowing revenue growth and intensifying competition.”

-Ravindra Gill

Wedbush (Neutral, Price Target Raised from $550 to $710)

“Last night Tesla delivered a potentially ‘game changing’ 4Q with strong profitability and healthy cash flow signaling what could be a new era for Musk and Fremont going forward... In our opinion, the new long-term bull case scenario on the stock is $1,000 with Tesla's 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. We maintain our NEUTRAL rating while raising our price target from $550 to $710 reflecting this more aggressive EV demand/profitability trajectory now outlined for 2020 and beyond.”

-Dan Ives

Cannacord (Buy, Price Target raised from $515 to $750)

"Critically, the company ended the quarter with $6.3 billion in cash and generated $1 billion of free cash flow in the quarter, which should finally put to rest any balance sheet concerns...Essentially flat gross margins compared to the prior quarter were a meaningful feat given the ramp associated with Gigafactory Shanghai moving to begin production resulting in an operating margin of 4.9%, and we expect to see that number improve as deliveries of Chinese Model 3's begin.”

-Jed Dorsheimer

Barclays (Underweight, Price Target unchanged at $200)

“With TSLA posting an earnings beat on top of seemingly unstoppable share price momentum since the surprise 3Q19 profit, the bull narrative has shifted from Tesla disrupting multiple industries to Tesla being a profitable and growing next-generation automaker. Even if one were to stipulate that as true, we believe the shares are sharply overvalued as an

automotive OEM. While we remain negative on underlying valuation, we expect Tesla to feed the bull narrative re China (which is ramping production), batteries (where they can ‘aim to target’ dramatic cost reductions) and Model Y (already in early production in Fremont) – creating risk of a further upward price momentum.”

-Brian Johnson

Bank of America (Underperform, Price Target Increased from $350 to $370)

“While TSLA’s 4Q:19 results came in better than most expectations and just ahead of our estimates, we believe this is reflected in the 40% run up in TSLA stock year-to-date, and 12%+ stock reaction in after-market trading. While Bulls on TSLA view the two most recent quarters (3Q:19 and 4Q:19) as indication that the company has effectively

transformed profits and free cash flow, we remain skeptical that TSLA has completely turned the corner, and rather believe that growth may be accompanied by additional income and cash flow volatility.”

-John Murphy

Morgan Stanley (Underweight, Price Target unchanged at $360)

“The quality of the earnings and $6.3bn of gross cash position may be seen as lowering the odds of new supply of stock or putting the company in position to access capital from a position of strength. This quarter may be seen as the moment a new genre of tech investors were waiting to perceive Tesla through a new narrative:as a profitable and cash generative tech company with a reasonably-sized market cap in the same discussion as the mega-tech ‘platform’ names.”

—Adam Jonas and Armintas Sinkevicius

Bernstein (Market perform, Price Target unchanged at $325)

“On net, we believe Tesla is simultaneously too hard to short without a discernible catalyst – it is hard to fight a religious war, after all - but also too expensive and risky to initiate a significant overweight. At $650 in the aftermarket, one needs to believe TSLA trades at 20x 2023 EBIT (higher than Netflix) or that it can become bigger and/or more profitable than Volkswagen over time.”

—Toni Sacconaghi

Oppenheimer (Buy, Price Target raised from $612 to $684)

TSLA delivered strong operating results while issuing 2020 unit guidance at levels we believe will continue pushing shares higher. We believe Model Y ramp commencing several quarters ahead of optimistic estimates suggests TSLA’s product cycle time is improving and remains well ahead of competitors. We believe battery chemistry and density improvements are core to the longer than expected range for Model Y and will help drive weight and cost reductions. Comments on ADAS suggested TSLA expects accelerating development driven by significant software foundation investment. We remain cautious on NT ADAS timelines give recent history. We expect bears to highlight flat Q/Q automotive GM and risks to TSLA achieving higher market share. Given competition lagging from a product design/availability perspective, we remain bullish.

—Colin Rusch