Later today, electric car maker, Tesla Motors Inc (NASDAQ:TSLA), will announce their latest quarterly results. And even though sales of its Model S are expected to be down this year, some analysts are still eager to BUY.
An Analyst Perspective
Morgan Stanley analyst Adam Jonas reiterated his BUY Tesla Motors Inc (NASDAQ:TSLA) rating on May 1, but removed his $320 price target. Adam was already thinking about the company’s Q1 results when he noted, “investors are increasingly concerned about how the market will react to a possible YoY decline in N. American deliveries of the Model S in 2014. We believe a decline in NA deliveries is not only possible, but is likely… and reasonable. In fact, we’d argue that anyone with a FY14 global delivery forecast of less than 35k units has a global geographic split that clearly implies a YoY decline of Model S volume in N. America, if not a severe deceleration to near 0% growth. Will the headlines matter for how the stock trades? Very possibly. Are we fundamentally concerned? No.” Despite this almost guaranteed disappointment, Adam still recommends BUY and he has already earned +1.6% over S&P-500 with this recommendation.
Adam’s Past Recommendations
Adam has an 80% success rate recommending Tesla Motors Inc (NASDAQ:TSLA), and has earned a +25.0% average return over S&P-500 on the stock. His success with Tesla has helped him earn the number 115 spot out of 3051 analysts, with an average return of +6.7% over S&P-500 and a 55% success rate of all recommendations.
In December of last year, Adam earned one of his highest returns recommending BUY Tesla. After hitting a record high of $194.50 in September of 2013, the stock fell 28% after several batteries caught fire over a 6 week period. However, Adam insisted that December was the time to BUY, arguing, “investors who resisted buying into the momentum peak have a new chance to own a good and well-managed company with proof of concept and exceptional top-line optionality…While TSLA still has a lot to prove to fundamentally justify its valuation, we believe the stock offers a better risk-adjusted return vs. any other stock in our US auto coverage.” He believed the stock could bounce back and he ended up earning +68.0% over S&P-500.
Adam also saw an even higher return when he recommended BUY Tesla earlier in June of 2013. Even though the stock was volatile, and the auto industry was facing some difficulties due to the decline in North American capacity and pricing for used vehicles, Adam thought Tesla was “worth $109 on a 15-year DCF [discounted cash flow]”. Adam’s recommendation earned him +78.1% over S&P-500.
In addition to Tesla Motors Inc (NASDAQ:TSLA), Adam has earned positive returns recommending Harley Davidson (HOG), including his May 6, 2013 BUY recommendation. Adam pointed out that Harley Davidson has a “competitive, flexible manufacturing footprint” and “HOG’s $0.5bn restructuring since 2009 has seen a 50% cut in the hourly workforce and implementation of ERP and flexible manufacturing where 30% of the workers can be seasonal. HOG has generated significant free cash flow to equity holders for 18 of the past 20 years and we expect $1bn of FCF on average through 2017.” This recommendation earned Adam +1.4% over S&P-500 while Adam’s latest recommendation to BUY Harley Davidson, from April 23 of this year, has already earned another +1.0% over S&P-500.
Of course the car industry is not always as flat as the roads, causing Adam to experience a few losses, including his March 5th recommendation to BUY Tesla. After the company released information about its $5 billion gigafactory, Adam started to project Tesla Motors Inc (NASDAQ:TSLA)’s future through numbers. Adam noted, “the success of Tesla’s gigafactory could lead to the development of an entirely new industry, which could possibly break into a $1.5 trillion global electricity market.” Adam maintained his BUY rating with a $320 price target, but he was left with -18.5% over S&P-500. Adam has since dropped his $320 price target, as mentioned above, and has already earned a positive return of +1.6% over S&P-500.
Whatever Tesla reports, Adam is confident in the future of the company. Are you waiting for the facts before you BUY Tesla?