Tesla Stock May Need More Than Surprise Profits
The Tesla Motors Inc (NASDAQ:TSLA) stock price has been hovering around $200.00 for quite some time, but this will probably change. TSLA stock is likely to gain from the news that the company posted its second profitable quarter, which surprised most analysts.
Moreover, the company maintained its guidance of 50,000 new vehicle deliveries for the second half of 2016, with a plan of delivering just over 25,000 vehicles in the fourth quarter. Tesla had delivered 24,500 in the third quarter, which boosted Tesla stock.
For the third quarter, Tesla’s quarterly profits were $0.71 per share (which beat the consensus), and the company reported $2.3 billion in revenue. Tesla expects the trend to continue in the fourth quarter, and it projects positive generally accepted accounting principles (GAAP) net income. (Source: “Tesla Third Quarter 2016 Update,” Tesla Motors Inc, last accessed October 26, 2016.)
The combined net orders for new “Model S” and “Model X” vehicles grew 68%, compared with the same period last year. Year-over-year order growth in the third quarter was driven by new product launches, increased store efficiency, and new store openings. The company believes that self-driving hardware and other product enhancements will lead to additional market share gains.
Tesla CEO Elon Musk clarified that the third-quarter results have not been achieved at the expense of the fourth quarter. In the current quarter, the company may be profitable on an adjusted basis, but Musk reiterated that the fourth quarter will be great.
Although Tesla has generated free cash flow, repaid $600.0 million in debt, and finished September with $3.1 billion in cash, doubts over its cash burn continue. Analysts are still cautious, as the results have come about on account of cost-cutting and selling zero-emissions tax credits. This might weigh on TSLA stock, which has already suffered due to concerns about Tesla’s SolarCity Corp (NASDAQ:SCTY) acquisition.
Earlier in the month, Goldman Sachs Group Inc (NYSE:GS) analyst David Tamberrino had cut his rating for TSLA stock to “neutral” from “buy,” and had cut his price target for Tesla stock to $185.00, due to concerns about the potential collateral damage from the proposed acquisition. “We believe that the proposed combination of Tesla and SolarCity – two high-growth, high-cash burn businesses – creates a higher risk entity, ” wrote Tamberrino. (Source: “Tesla’s stock drops after Goldman removes bullish rating,” MarketWatch, October 7, 2016.)
After Tesla unveils an integrated solar roof on October 28, investors will be watching the company’s stockholder meeting on November 17. Investors will also be looking for more information about Tesla’s “Model 3” vehicle. This will determine the direction of TSLA stock.