Tesla Needs Blowout Numbers, or It Will Crash After Earnings Tonight

NEW YORK (TheStreet) -- Tesla Motors (TSLA) is set to report its earnings for the first quarter of fiscal 2014 at the end of trading today. Wall Street is expecting the world's most successful electric car company to report a 5 cent per share drop compared to a year ago, alongside a 23% gain in revenue.

Tesla shares began to soar in late February after the company's last earnings report beat expectations and the company officially announced plans to build a massive lithium-ion battery factory to address battery supply. Battery manufacturing had been a key hangup in Tesla's production of new cars.

However, Tesla shares have been caught up in the broad selloff of growth and momentum stocks which began back in March.

TSLA Chart TSLA data by YCharts

Tesla shares have fallen dramatically from a high of $265 to just under $200, as the stocks of tech companies with high price-to-earnings ratios have been getting slammed. Despite the headache for shareholders, investors are still optimistic about today's earnings numbers.

The information below is derived from data submitted to the Estimize.com platform by a set of buy-side and independent analyst contributors.

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The current Wall Street consensus according to Zacks Investment Research is for earnings of 7 cents per share and $693.43 million in revenue. Compare that to the Estimize.com consensus from 100 hedge analysts, asset management firms, and independet analysts. They call for 22 cents in earnings per share and a revenue estimate of $721.11 million.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

More importantly, Estimize does a better job of representing the market's actual expectations, according to Deutsche Bank Quantitative Research and an independent academic study from Rice University. Stock prices tend to react more closely to the Estimize benchmark expectations than to the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market.

In this case the stock is in the middle of a selling frenzy, but we are seeing a large and positive difference between the earnings expectations from Estimize and Wall Street.

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The distribution of estimates by analysts on the Estimize.com platform range from 4 cents to 42 cents per share in earnings, and from $590 million to $874 million in revenue. This quarter we're seeing a moderate to wide range of estimates on Tesla compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of EPS estimates signals less agreement in the market, which could mean greater volatility post-earnings.

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Throughout the quarter, Wall Street has taken down its earnings estimates for Tesla from 29 cents per share to 7 cents per share as the stock has fallen. The consensus from contributing analysts on Estimize.com has dipped as well, but not nearly to the same degree.

Meanwhile, revenue estimates have been increasing throughout the quarter, which is a sign of increasing confidence in Tesla's sales. Since January, the Estimize community has increased its sales projection 11% from $648.4 million to $721.11 million.

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The analyst with the highest estimate confidence rating this quarter is anmikyoso who projects 34 cents in earnings per share and $732.89 million in revenue. anmikyoso is ranked 37th overall among over 4,400 contributing analysts and has been more accurate than Wall Street in forecasting earnings and revenue 60% and 52% of the time, respectively, through 258 estimates.

Estimate confidence ratings are calculated through algorithms which look at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, anmikyoso is making an aggressive call, expecting Tesla to crush expectations from both Wall Street and the Estimize community.

Despite the sharp pullback in Tesla's stock price, investors are still optimistic about today's earnings report. So far this earnings season, we have already seen a few examples of the high momentum stocks selling off, while investor sentiment as manifest on the Estimize platform has remained high. To name a few, Facebook (FB), Twitter (TWTR) and Yelp (YELP) have all beaten the fundamental earnings expectations from Wall Street.

But that hasn't been enough to stop the selling.

Tesla shares have been falling, but earnings expectations from 100 contributing analysts to Estimize remain high. However, based on what we know from third-party research on the Estimize data set, stock prices on average tend to react to earnings as benchmarked against the Estimize consensus more so than Wall Street's forecast.

This means Tesla will need to report the blowout quarterly earnings of 22 cents per share and $721.11 million in revenue that the Estimize community is expecting just to keep investors satisfied.

Take a look at how earnings from Facebook, Twitter and Yelp have stacked up compared to the expectations from Estimize and Wall Street this quarter.

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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