Tesla Motors just hasn’t had a good week, and it’s only Tuesday. The EV manufacturer’s stock slumped on Monday after a downgrade from analysts at Deutsche Bank and kept falling today after a second downgrade, this time from Pacific Crest.
Tesla still disruptive
In a report dated July 7, Pacific Crest analyst Brad Erickson expressed about the same sentiment as the Deutsche Bank team did. He still likes Tesla and thinks it is still a disruptive company, but he thinks the valuation of the automaker is now full. As a result, he downgraded the stock to Sector Weight.
At the time he wrote his report, he saw full valuation at $293 per share. With yesterday’s and today’s declines in Tesla’s share price, the stock has moved meaningfully away from that price level.
Tesla rewriting the automotive story
While the Deutsche Bank downgrade report focused a lot on Tesla’s stationary energy storage products, Erickson focused on the company’s continue success in the auto industry. He sees the EV manufacturer as “one of the most innovative stories in all of automotive.”
He highlighted Tesla’s complete operations, starting with the technology innovations and the manufacturing of the company’s cars and going all the way through the company’s sales and marketing efforts, distribution, and top-level executives. The analyst thinks Tesla’s differentiation from other automakers is “nothing short of total.”
Tesla valuation changes risk/ reward profile
Erickson noted that with his full valuation price of $293 per share, there is still room for upside. However, he thought Tesla’s share price had reached a level where the risk/ reward had become more balanced.
He pointed out that the bar for Tesla’s performance has been set quite high, also noting that sentiment has shifted significantly over the last six months. Investors are no longer worried about falling oil prices, competition, China, or demand. He also thinks Wall Street has become much more optimistic about the Model X launch, which is expected in September.
Tesla estimates lowered
In addition to downgrading Tesla stock, he also reduced his estimates for this year and next year. The reason for the reduction was lower expected lease revenue. For the second quarter, Erickson did raise his estimates, as he now expects Tesla to report $1.154 billion in revenue, compared to his previous estimate of $1.142 billion. He’s looking for losses of 21 cents per share, compared to his previous estimate of 22 cents per share in losses.
However, for the third quarter, he cut his revenue estimate from $1.439 billion to $1.278 billion and his earnings estimate from 30 cents to 7 cents per share. He also upped his fourth quarter estimates, with revenue moving from $2.069 billion to $2.135 billion and earnings moving from 93 cents to $1.08 per share. For the full year, he now expects $5.671 billion in revenue and 65 cents per share in earnings. His previous full-year estimates were $5.754 billion in revenue and earnings of 71 cents per share.
Because of how high the bar has been set, he said anything even just a little short of that bar might cause “meaningful downside” in Tesla shares. He sees very limited upside potential to delivery estimates for the third and fourth quarters after his last visit to the Tesla factory.
As of this writing, shares of Tesla Motors were down 3.47% at $258.59 per share.