TSLA with Nobias Technology: Case Study on Tesla
The Nasdaq just posted a strong weekly performance of +2.26%; however, Tesla (TSLA) shares posted even bigger gains, up 9.48% during the last 5 trading sessions. This was welcomed news for TSLA bulls after the roughly 38% year-to-date losses that Tesla had posted coming into its recent second quarter report.
Tesla reported earnings on Wednesday, Jule 20th, meeting Wall Street’s expectations on the top-line, posting quarterly revenue of $16.93 billion, up 41.6% on a year-over-year basis, and exceeding expectations on the bottom-line, with non-GAAP earnings-per-share coming in at $2.27/share, $0.47/share above the consensus analyst estimate. These Q2 results inspired a late-week rally, sending shares nearly 10% higher from the $745 area up to their current share price of $816.73.
According to coverage from Kevin. P. Curran, a Seeking Alpha news editor, this rally caused investors who were short Tesla coming into the quarter to lose more than a billion dollars in total. Regarding the aggregate position of TSLA short sellers, Curran highlighted work performed by Ihor Dusaniwsky, Head of Predictive Analytics at data and predictive analytics firm S3 Partners, who noted “that while short sellers were “actively trimming” exposure into the quarter by covering over 2M shares, total short interest remained at just over $18.5B heading into the report.”
TSLA Jul 2022
Dusaniwsky continued, “We should expect its short covering trend to continue as short sellers get squeezed out of their positions due to these large and sudden losses. These buy-to-covers and the potential for hedge funds to bulk up their positions in a high beta name with a positive price trend may help reverse TSLA’s year price weakness.”
Howard Smith, a Nobias 4-star rated author, covered Tesla’s earnings results in an article at The Motley Fool. Smith wrote, “Tesla earned $1.95 per share for the quarter from sales of $16.9 billion. While that was down from first-quarter revenue of $18.8 billion, it still represented a jump of 42% year over year. And both top- and bottom-line results beat analyst expectations of $1.81 per share and $16.5 billion, respectively.” He continued, “Investors already knew the second quarter was challenging, with COVID-19 delays at its Shanghai plant and supply chain issues hampering the ramp-up of its two new plants. But Tesla's original guidance of 50% annual production growth still remains doable, which boosted investor confidence after the stock was down more than 30% year to date heading into the report.”
Smith highlighted Tesla’s improving balance sheet, writing, “The company ended the quarter with $18.9 billion in cash, cash equivalents, and marketable securities. The cash position grew thanks to more than $600 million in free cash flow.” Ultimately, he concluded, “That's the sign of a healthy business.”
With regard to the health of Tesla’s business, Shrilekha Pethe, a Nobias 5-star rated author, broke down the company’s automotive producing numbers during Q2 in a recent report. Pethe said, “In Q2, TSLA produced 258,580 cars, which increased 25% year-over-year. It delivered 254,695 cars, up 27% year-over-year.
Pethe continued, “By the top-rated analyst’s estimate, the company’s installed annual production capacity is currently at more than 1.9 million vehicles, with production likely to reach approximately 40,000 per week by the end of this year.”
Pethe acknowledged Tesla’s post-earnings rally; however, she offered a bit of caution to bullsh investors during the conclusion of her piece, stating, “While Tesla seems to be riding through the current challenging macro environment well, it remains to be seen how it measures up if the current economic slowdown continues.”
Marty Shtrubel, a Nobias 4-star rated author, also noted a potential concern coming out of Tesla’s second quarter results in a recent article at Nasdaq.com, stating, “One area of concern, however, was noted in the margin profile, which suffered at the hands of rising inflation and stiff competition for EV parts. Margins contracted to 27.9%, below the impressive 32.9% reported in Q1 and the 28.4% delivered during the same period last year. The margin drop was linked to the costs associated with the ramping of the new facilities in Austin and Berlin.”
It appears that Morgan Stanley analyst, Adam Jonas, shares these concerns. In his piece, Shtrubel wrote, “Surveying the results, Morgan Stanley’s Adam Jonas notes that demand is still outstripping supply. Although with the “new challenges” on account of the ramping of production - especially in Berlin - the analyst is readying for further “near-term margin headwinds.”’
However ultimately, Jonas remains a Tesla bull. Jonas touched upon Tesla’s valuation in his note, saying, “In the interim, we have a stock trading at approx 20x EBITDA and 35x our current FY25 forecasts… multiples that many auto investors are likely to find unacceptably high but tech investors may find attractive…” Shtrubel stated, “Jonas seems to find those multiples acceptable. The analyst reiterated an Overweight (i.e., Buy) rating along with a $1,150 price target, implying room for share appreciation of 41% over the coming year.”
Overall, on July 22, 2022 Shtrubel said that the average price target for TSLA shares on Wall Street was $886.04. Therefore, he acknowledged that the majority of Wall Street analysts agree with Jonas’ bullish take, saying, “Most are backing TSLA’s continued success, but there are voices heeding caution; the stock’s Moderate Buy consensus rating is based on 17 Buys, 5 Holds and 7 Sells. Going by the $886.04 average target, shares are expected to climb a modest 9% over the one-year timeframe.”
One such Wall Street TSLA bull is Gene Munster of Loup Funds. In the wake of TSLA’s Q2 report, Shanthi Rexaline, a Nobias 4-star rated author, highlighted analysis provided by “Noted Tesla analyst and Loup Fund co-founder Gene Munster”.
Rexaline broke down Munster’s post-earnings analysis, listing his “Key Earnings Call Takeaways”. Rexaline wrote:
Musk reaffirmed that the broader rollout of the full-self-driving feature is on track this year. Munster is of the view the recent departure of Tesla’s ex-AI executive Andrej Karpathy isn’t a measurable headwind to the timing of the FSD release, given the company has a team of 120 people in the software AI group.
The Tesla CEO also said in his prepared remarks that FSD users now number 100,000. Munster said this is ahead of his estimate of 50,000.
The company announced that AI Day 2.0 is being pushed from August to either September or October. The shift, according to the Loup analyst, is due to Karpathy leaving.
Tesla CFO Zach Kirkhorn said the delivery growth target of 50% is difficult but doable. Kirkhorn also hinted at margin pressure due to the ramp of the Giga factories in Austin and Berlin.
Musk mentioned carbon, steel, and aluminum prices are falling. Munster expects this to positively impact margins in early 2023.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Looking at the credible Wall Street analysts that Nobias tracks, we see that the average price target being applied to TSLA shares by the individuals with 4 and 5-star Nobias ratings is even higher than Wall Street’s consensus opinion.
Right now, the average TSLA price target amongst this cohort of credible individuals is $928. Relative to TSLA’s current price of $891, that presents an upside potential of approximately 6%. However, the credible authors that the Nobias algorithm tracks (once again, only individuals with 4 and 5-star Nobias ratings) remain largely bearish on TSLA shares. 90% of recent articles published by credible authors have expressed a “Bearish” bias towards TSLA shares.
Tesla has been a very volatile stock throughout 2022 and with this disconnect between the author and the analyst communities tracked by the Nobias algorithm in mind, it’s likely that this trend continues as the game of tug-of-war between the bulls and the bears on this $845 billion company continues to play itself out.
Disclosure: Nicholas Ward has no TSLA position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.