Tesla Motors Inc stock edged higher during regular trading hours today after analysts at Argus Insights said they upgraded it, following in the footsteps of Baird analysts. The automaker’s shares are up 2.04% as of this writing after the firm said it has upgraded them from Hold to Buy and set their price target at an ultra-bullish $333.
Tesla has addressed problems
Argus Insights analysts said in this morning’s “Market Digest” edition that they think Tesla management has successfully addressed its production issues and cost overruns over the last year and a half. As a result, they think the automaker will see “much stronger performance in the coming quarters.” They also think it will either meet or exceed its production targets and announce that it hit positive cash flow by the end of the first quarter. Further, they’re expecting a “significant acceleration in non-GAAP earnings” next year.
The Argus team notes that Tesla has finished construction on its gigafactory and that management expects to trim the cost of the automaker’s battery packs by over 30%. This will enable the company to roll out the $35,000 mass market Model 3, which is expected to be unveiled at the end of this month.
Despite their price target increase and upgrade, their cutting their non-GAAP earnings estimate for this year from $1.48 to $1.25 per share because they now expect higher costs due to greater investments in new projects. They’re still higher than the consensus at $1.20, however. For next year, they’re projecting non-GAAP earnings of $3.21 per share.
Tesla Motors stock underperforming this year
The Argus team also notes that Tesla Motors stock has underperformed the S&P 500 Consumer Discretionary Index so far this year, although over the last year, the automaker’s shares gained 12.8%, outperforming the index’s 2.8% gain. However, they expect Tesla stock to rise significantly as the automaker executes on management’s high targets
The automaker expects to produce between 80,000 and 90,000 vehicles this year, which is significantly more than it produced last year. Wall Street seems to be highly skeptical that Tesla can achieve this. Argus notes that advance orders for the Model X climbed 75% year over year in the fourth quarter, although large-scale deliveries aren’t expected to begin until the second half of this year.
The firm rates Tesla’s financial strength at Medium and notes that Standard & Poor’s rates its debt at B/ stable, although the other ratings agencies haven’t rated it.