Tesla Motors Inc
Shares of Tesla Motors Inc (NASDAQ:TSLA) tumbled nearly 10% today following news that the electric car marker will purchase SolarCity for $2.8 billion. The company aims to access Solar City’s distribution networks and technology, all under the Tesla brand.
Reacting was Oppenheimer analyst Colin Rusch, which downgraded the stock from Outperform to Perfom, while removing his $385 price target, as he believes that the uncertainty around the acquisition and the resulting corporate structure will weigh heavily on the stock.
Rusch wrote, “With the proposed acquisition of SCTY, TSLA is contemplating what we believe is a fundamental change to its business model, even if the company argues it is within TSLA’s mission. While we remain bulls on the solar industry, we do not view this acquisition as the best and highest use of TSLA’s capital and human resources given the potential return on capital possible in the electricity industry (typically ~8%-9%) versus the potential leverage of the TSLA auto platform which we believe could demonstrate ROIC of 15%-20%+. We expect a robust shareholder fight over this acquisition centered on corporate governance.”
The analyst concluded, “We believe investors are likely to view this transaction as a bailout for SCTY and a distraction to TSLA’s own production hurdles. Given what we view as significant operational and integration challenges over our forecast horizon, we believe stepping to the sidelines is warranted.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Colin Rusch has a yearly average return of 8% and a 44% success rate. Rusch has an 88.9% average return when recommending TSLA, and is ranked #464 out of 3984 analysts.
Shah commented, “While we believe SCTY stands to benefit from a growth and customer acquisition cost standpoint under the TSLA umbrella, the final valuation of the deal would likely depend on how TSLA investors react to this offer. TSLA has a lot of longer term benefits to offer investors and has a solid track record from a product standpoint. However, investors focused on near term financial metrics may not be particularly excited by this combination which in turn could limit the upside to SCTY shares.”
According to TipRanks.com, analyst Vishal Shah has a yearly average return of -24.3% and a 24% success rate. Shah has a -29.8% average return when recommending SCTY, and is ranked #3884 out of 3984 analysts.
Out of the 16 analysts polled by TipRanks (in the past 3 months), 5 rate SolarCity stock a Buy, 9 rate the stock a Hold and 2 recommend a Sell. With a return potential of 43%, the stock’s consensus target price stands at $30.27.
Kalinowski explained, “With the U.S. restaurant industry looking like it could remain sluggish for the remainder of 2016, and McDonald’s starting to lap tougher comparisons in Q4, we believe MCD stock is more likely to be range-bound for the rest of this year. Given the increasing difficulty McDonald’s is apparently having in generating U.S. same-store sales – and that these challenges may grow once tougher comparisons roll around – we reduce our target.”
“While we applaud changes that management continues to make (e.g., testing of fresh beef and actions to reduce costs), we believe that a Neutral rating is more appropriate at this time. With MCD no longer our top large-cap restaurant-stock pick, we now make YUM! Brands our top large-cap restaurant stock pick,” the analyst added.
According to TipRanks.com, analyst Mark Kalinowski has a yearly average return of 11% and a 74% success rate. Kalinowski has a 7.6% average return when recommending MCD, and is ranked #265 out of 3984 analysts.