In this article, Smarter Analyst takes a look at the bull and bear case for electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA) and restaurant company Chipotle Mexican Grill, Inc. (NYSE:CMG). Here’s a quick roundup of today’s bullish and bearish brokerage notes on TSLA and CMG.
Tesla Motors Inc
Berenberg analyst Adam Hull initiated coverage on shares of Tesla Motors, with a Sell rating and price target of $165, which implies a slight downside potential from current levels.
Hull wrote, “From a start-up in 2003-04, Tesla’s achievement is impressive. However, despite the negative effect of the strong dollar and the low oil price, its 2017E enterprise value of c$27bn is more than double what we estimate Mercedes is valued at,” said Hull. “While the Model 3 range, presented in late March 2016 and to be delivered from Q4 2017, should be a strong product, we think margins will disappoint. We are 10-18% below 2016-18 EPS consensus, but with 2020 EPS of €9.0 we are c37% below 2020 EPS consensus of c$14.3.”
“At this price, we think Tesla is now a play on Model 3’s potential profits – we forecast a gross margin of 16% in 2020, well below the c20% consensus. We even assume a halving of the current non-battery Model S COGs of c$58,000. Mercedes and BMW have c$70bn of revenue in the segment yet only achieve a gross margin of c15% and an EBIT margin of c4%. Even in 2020, Tesla’s Model 3 revenue may only be c$10bn. We also think many competitors will accept large losses on EVs until 2025,” the analyst continued.
Out of the 14 analysts polled by TipRanks in the last 3 months, 7 rate Tesla stock a Buy, 5 are neutral, and 6 are bearish. With a return potential of nearly 73%, the stock’s consensus target price stands at $300.83
Chipotle Mexican Grill, Inc.
Wells Fargo analyst Jeff Farmer upgraded shares of Chipotle from a Neutral to an Outperform rating, while raising the price target range to $500-$530 (from $420-$450).
Emphasizing increased conviction in his Outperform rating, Farmer noted, “We’re upgrading shares to Outperform as two decades of food safety case studies indicate share price recoveries closely track the recapture of lost same-store-sales (SSS), and (2) the majority of restaurant concepts that have experienced a food safety issue see the return of sustained SSS growth within 12-15 months of the incident.”
The analyst concluded, “We believe investors should be reminded of how powerful Chipotle’s unit-level economics model is.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jeff Farmer has a yearly average return of 19.7% and a 86% success rate. Farmer has a 11.9% average return when recommending CMG, and is ranked #242 out of 3600 analysts.
Out of the 30 analysts polled by TipRanks, 14 rate Chipotle Mexican Grill stock a Buy, 15 rate the stock a Hold and 1 recommends a Sell. With a return potential of nearly 15%, the stock’s consensus target price stands at $522.55