Tesla Downgraded By Morgan Stanley, Cuts Target By $88; Rated Overweight Since 2012
Tesla Motors Inc (NASDAQ: TSLA) has agreed to acquire SolarCity Corp (NASDAQ: SCTY) in an all-stock transaction valued at $2.9 billion. Morgan Stanley’s Adam Jonas downgraded the rating for Tesla from Overweight to Equal-weight, while reducing the price target from $333 to $245. The analyst commented that the risks related to the proposed takeover outweigh any rationale.
Jonas said while there may be long-term commercial and strategic rationale for combining the two entities; currently the opportunity did not seem attractive enough to compensate Tesla’s investors for the added risk and cash consumption.
Will SolarCity Lend Upside To Tesla Shares?
Jonas mentioned three broad factors that impacted Tesla’s share price and whether the proposed purchase of SolarCity help:
- Quality and appeal of its cars: Acquiring SolarCity would not help Tesla make better cars.
- Pace of cash consumption: Rather than improving Tesla’s cash burn, buying SolarCity would actually worsen the problem.
- Ability to access capital markets to finance growth objectives: Tesla’s plans of acquitting SolarCity has raised “a number of questions around governance that may test the bond of trust with investors who, to this point, have funded Tesla’s early accomplishments,” the analyst wrote.
Jonas added that the 26 percent reduction in the price target mostly reflected “a higher risk premium we believe should be demanded by investors following the surprise proposal to acquire SolarCity.”
Latest Ratings for TSLA
|Oct 2016||Goldman Sachs||Downgrades||Buy||Neutral|
|Sep 2016||Cowen & Co.||Initiates Coverage on||Underperform|
|Jun 2016||Argus Research||Downgrades||Buy||Hold|
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