Tesla Shares Rev Up With Analyst Confidence

Tesla Motors Inc TSLA shares continued to spike on Thursday following investor confidence off the company’s increased deliveries guidance for the first quarter of 2016. The company fell short of revenue projections and posted a loss per share of $0.87 when consensus saw them at a $0.10 profit.

Wall Street analysts were generally pleased, however, as the company’s increased unit guidance indicates it could deliver on its long-held promise. However, some pointed to problems in the Model X rollout that they believe demonstrated potential execution risks.

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‘Mixed Bag’

Morgan Stanley analyst Adam Jonas was pleased with Tesla’s results, noting its fiscal year outlook was “higher than we expected in every aspect.” The Tesla perma-bull reiterated an Overweight rating and a price target of $333.

Execution risks didn’t weigh on Jonas’ mind. He wrote, “The quarter demonstrated stronger than expected underlying profitability despite significant manufacturing and productivity challenges.”

He did warn, however, that near-term expectations might be too high for Tesla. The company issued a full-year volume increase guidance 20–40 percent higher than Jonas’ estimate.

Despite that, Jonas concluded that Tesla’s “ambition to disrupt remains intact.” However, that ambition is now tempered with an incrementalist approach: CEO Elon Musk said in the earnings call that “it would have been better to have started production with fewer ambitious features in the cars and then roll out improvements over time.”

Global Equities Research analyst Trip Chowdhry noted that Tesla’s “fundamentals are strong,” predicting the company could deliver 85,000 vehicles in 2016 and reiterating an Overweight rating and a price target of $385.

Dougherty analyst Andrea James maintained a Buy rating and a $355 price target. She focused on Tesla’s emphasis on cash flow during the earnings call, quoting incoming Tesla CFO Jason Wheeler, who told investors “"My mandate from Elon is clear. Cash is king."

In cash terms, the company generated $179 million in core operations in the fourth quarter after burning through $135 million in the previous three.

James also took confidence from Tesla’s commanding market share: The Model S outsold the Audi A7 and A8, the BMW 6 and 7 series and Mercedes S-class in the United States in 2015. She recommended investors buy Tesla shares below $200.

Union Bank of Switzerland analyst Doug Mitchelson was suspicious of Tesla’s cash flow reports, however. He looked at the same $179 million figure as James, but noted the company still burned $232 million after capital expenditures. He expected $800 million in cash burn for 2016.

Mitchelson concluded with a bearish outlook, claiming Tesla’s profitability targets “look tough” and lowering 2016 EPS estimate from $0.60 to $0.30.

Deutsche Bank analyst Rod Lache wrote that Tesla had a “mixed bag” quarter. While he saw “constructive” long-term developments, such as an increase in unit reservations despite “minimal marketing effort,” he felt the company’s execution risks held him back from endorsing the stock. He reiterated a “hold” rating and price target of $280, noting the company was “on track” for EPS of $1.25 for 2016.

Credit Suisse analyst Dan Galves saw a similar mix of results, but sees a very bright future for Tesla. He gave the stock an Outperform rating, but cut the price target from $325 to $240 and halved his 2016 EPS estimate, leaving it at $2.00.

Despite the big numbers hit, Galves saw “some substantial positives” in Tesla’s report. He did not share other analysts’ execution concerns, writing, “It appears the most difficult part of the Model X launch is behind the company.”

Galves views production hiccups as growing pains, concluding that while Tesla is a “challenging company to own,” it is “on the path to be a major automaker” with the “only truly differentiated product in autos.” He noted that Tesla trounced other luxury car brands in autopilot tests, despite only having had an in-house autopilot team since 2013.

Tesla shares swelled with the investor confidence, up nearly 8 percent Thursday afternoon.