Why This Investing Pro Says Tesla Equity Offering Could Be Imminent

Tesla Inc TSLA reported forecast-beating results for the second quarter and its fourth straight quarter of profitability.

Tesla Stock Offering Ahead? Tesla will likely be added to the S&P 500 Index fairly quickly, probably within the next seven to 1- days, and the inclusion would require the company to announce an equity offering, Gary Black, former CEO of Aegon Asset Management, U.S., said in a series of tweets.

The rationale for his statement is that index inclusion will trigger demand for the stock as index funds buy shares to adjust their portfolios to align them with the index's composition. Black estimates that about 25 million shares will be in demand.

$TSLA Next: S&P likely to move fairly quickly to add TSLA to S&P 500 (next 7-10 days). In tandem with S&P action, TSLA likely to announce new $5B-$10B secondary to add liquidity for indexers needing ~25M shares. Proceeds will be used primarily for Austin/Berlin capital spend.

— Gary Black (@garyblack00) July 23, 2020

Benefits of A Potential Tesla Offering: Proceeds from a potential offering would likely help Tesla finance its proposed Austin and Berlin Gigafactories, Black said.

The proceeds could also help the company reduce its net debt, which stands at $5.5 billion, to zero, boosting the chances of an investment-grade credit rating by 2021, he said. 

Black Expects Tesla's Valuation To Rise: Black said he expects Tesla's second-half volume growth to accelerate to 50%-plus, allowing a PE ratio of 100 times estimated earnings per share for 2021.

Assuming a 50% EV penetration in 2030 and giving Tesla a 17% share, the company could sell 6.8 million vehicles in 2030, generate $46 billion in net income and achieve market capitalization of $920 billion, he said. 

At last check, Tesla shares were slipping 6.02% to $1,496.41.

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Photo courtesy of Tesla.