Tesla Inc's TSLA lean patch continues, with the latest negative headline hitting the stock hard being its non-inclusion in the S&P 500 Index.
The Tesla Analyst: GLJ Research analyst Gordon Johnson has a Sell rating on Tesla with a $19 price target.
The Tesla Thesis: Tesla's poor earnings quality over the last 26 quarters may have been the chief reason for the S&P 500 committee's snub, Johnson said in a Tuesday note.
The automaker has shown positive net income in four of the 26 quarters, excluding one-time credit sales, the analyst said.
Tesla's balance sheet and cash flow quality are poor, he said. Despite building a new factory in China and developing three models, Tesla's capex and operating expenditures have been declining steadily, Johnson said.
This could be due to Tesla financing its capex and opex using equipment leases, resulting in those being excluded from reported free cash flow, the analyst said.
Tesla's perpetual equity offerings to fund operations may also be a factor, he said.
The company raised capital again this month, despite CEO Elon Musk stating on Tesla's first-quarter 2019 earnings call that the company would be profitable in all quarters going forward and may never need to raise capital again, Johnson said.
Tesla's past capital raises limit its ability to raise money in the future, the analyst said, adding that with the route to the capital markets essentially blocked, Tesla's capacity to remain a going concern could emerge again as a risk.
Tesla is facing a demand problem, he said. The company guided to 790,00-unit production capacity by the year's end, not including the planned opening of two to three plants in development.
Yet Tesla's delivery guidance for 2020 is at 500,000 units, suggesting the company has demand for just 65% of its capacity in 2020, Johnson said.
Tesla has an undefined accounts receivable balance in excess of $1.4 billion despite auto sales falling by 8% quarter-over-quarter, the analyst said.
Finally, Tesla's large stock-based compensation expenses in the third quarter could push the company back into a net loss, he said. Musk's massive payout package includes $95 million in accelerated accruals for tranche two and $118 million for tranche three, or $213 million in total, according to GLJ Research.
TSLA Price Action: Tesla shares lost 21.06% in Tuesday's session, closing at $330.21.
Photo courtesy of Tesla.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.