By Emily Bary
Tesla Inc.’s sizable earnings beat prompted some humility from skeptics and is drawing effusive praise from the bull camp.
Tesla /zigman2/quotes/203558040/composite TSLA +10.78% shares rallied more than 12% late Wednesday after the company reported better-than-expected fourth-quarter earnings and gave investors more confidence in the company’s cash-flow position. The stock was headed for another record close on Thursday trading.
Tesla executives also sounded upbeat about the year ahead as the company sets out to sell upwards of 500,000 vehicles in 2020.
See more: Tesla surges after earnings beat, vows to sell more than half a million vehicles this year
Baird analyst Ben Kallo began his note to clients by acknowledging Chief Executive Elon Musk’s assertion that “a lot of retail investors actually have a deeper and more accurate insights than many of the big institutional investors and certainly a better insight than many of the analysts,” which came during Tesla’s earnings call.
“Given our decision to downgrade when shares were ~$150 lower, we accept the criticism,” wrote Kallo, who has a neutral rating on the stock and raised his price target to $650 from $525. He flagged some positive takeaways from the results and conference call, including the factor that China isn’t hurting Tesla’s margins as much as he once thought, but noted that he’s looking for a “more constructive” entry point following the stock’s massive recent rally.
Tesla shares have added 54% over the past month and 109% in the last 12 months, as the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.05% has increased 1.2% and 21%, respectively, over one- and 12-month spans. The stock was poised for another record close Thursday, which would be its 17th since mid-December, and set an intraday record of $650.88 earlier in the trading session.
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RBC Capital Markets analyst Joseph Spak wrote that some of his assumptions on Tesla were “misguided,” though he kept an underperform rating on the stock.
“We fully admit things are better than we expected and there is a lot of positive news flow and data points going Tesla’s way,” Spak wrote in a note to clients. Highlights from the report included Tesla’s commentary about increased production capacity and an earlier time frame for Model Y deliveries, but downsides included indications that Shanghai Model 3 production may not have a better margin profile than California production.
Though Spak tweaked his Tesla model to a “probability-weighted target” and increased his price target to $530 from $315, he still sees the stock as overvalued in his base case.
J.P. Morgan’s Ryan Brinkman acknowledged that Tesla made progress last year, notably with free-cash flow, but he maintained that the stock’s valuation is “increasingly disjointed from the fundamentals” given its big run up and the reaction to Wednesday’s results.
“That’s right: for all the talk of a breakout quarter for a hyper-growth company rightfully trading at 96x forward consensus EPS, Tesla in 4Q grew revenue just +2% year over year (despite deliveries +23%) while growing non-GAAP net income just +12% and EPS just +7% (given dilution),” wrote Brinkman, who kept his underweight rating on the stock while lifting his price target to $260 from $240. The new target is almost 60% below Tesla’s current stock price.
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For bulls, however, the report was an opportunity for a victory lap.