Market Overview

Morgan Stanley Raises Tesla Estimates After Earnings Analysis

Morgan Stanley Raises Tesla Estimates After Earnings Analysis
Related TSLA
Musk Will Buy Another $20M In Tesla Stock — The Same Amount He Was Fined By The SEC
Tesla Trades Higher After Judge Approves Musk's SEC Settlement
Tesla's $4,000 Model 3 Price Cut Implies A Higher Battery Price Than Nissan (Seeking Alpha)

Tesla Inc (NASDAQ: TSLA)’s second-quarter cash performance and year-end outlook came in better than Morgan Stanley had expected. The metrics prompted sharp adjustments to forecasts.

The Rating

Analysts Adam Jonas and Armintas Sinkevicius maintained an Equal-Weight rating on Tesla with a $291 price target.

The Thesis

Jonas and Sinkevicius don't expect Tesla to hit its targeted GAAP profitability and positive free cash flow in the third quarter, but they became more positive on related metrics. The analysts raised their GAAP net income expectation from a $1 billion loss to a $400 million loss and predicted FCF burn of $200 million against a previous estimate of $1 billion.

They also pushed back forecasts for a capital raise, from $3 billion in the third quarter to $2.5 billion in the fourth.

Given Tesla’s recent performance and guidance, Morgan Stanley increased third-quarter Model 3 delivery estimates from 33,600 to 50,400 and 2019 estimates from 260,000 to 312,000. The analysts also raised their 2018 auto gross margin forecast from 20 percent to 22 percent.

While maintaining their price target, they celebrated Elon Musk’s improved reputation, management’s improved cash discipline, Tesla’s new position to be able to raise capital out of desire rather than necessity, and the firm’s untapped potential.

“Tesla’s true utilization of its capacity is extremely low…leaving the potential for a step-change in operating results and free cash flow that may take the market by surprise near term,” Jonas and Sinkevicius wrote in a note.

At the same time, they warned investors Tesla’s 2018 achievements may not be sustainable in 2019 and beyond.

“At the margin, we think the stock may struggle to sustain sharply higher market expectations,” the analysts wrote.

Price Action

At time of publication, Tesla shares were trading around $353. The stock spiked around 12:20 p.m. after Financial Times reported Saudi Arabia's sovereign wealth fund has built a 3-5 percent stake in Tesla since the beginning of the year.

Related Links:

The Investor Reaction To Tesla's Earnings Call 'Doesn't Make Any Sense' To This Trader

Canaccord Initiates Tesla Coverage With Hold Rating, Considers Products 'Superior'

Latest Ratings for TSLA

Oct 2018MacquarieInitiates Coverage OnOutperform
Oct 2018CitigroupMaintainsSellSell
Oct 2018CitigroupMaintainsSellSell

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

Posted-In: Adam Jonas Armintas Sinkevicius Morgan StanleyAnalyst Color Top Stories Analyst Ratings Best of Benzinga


Related Articles (TSLA)

View Comments and Join the Discussion!

Latest Ratings

SBEvercore ISI GroupUpgrades4.5
PTIRBC CapitalUpgrades0.0
GPSJP MorganDowngrades24.0
GIIIB. Riley FBRUpgrades47.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Retaliatory Tariffs Sour US Cranberry Market

Volkswagen AG Could Recall 124,000 Electric And Hybrid Cars Due To Poisonous Cadmium Presence