Argus analysts discussed the future for Tesla Motors Inc (NASDAQ:TSLA) and Intel Corporation (NASDAQ:INTC) after potential deals regarding the companies was in the news lately. Below, analysts discuss how Intel’s sale of one of its non-core assets will further its business and fears that Tesla would face too much risk if it acquired SolarCity.
Tesla Motors Inc
Argus analyst Bill Selesky weighs in on Tesla’s proposed acquisition to acquire SolarCity for $2.6-$2.8 billion, representing a 25%-35% premium. Tesla offered to give between 0.122 and 0.131 of its shares for each SolarCity share.
Tesla’s reasoning behind the acquisition is to transform Tesla into a “vertically-integrated energy company.” Its hope is to be able to sell “electric cars, make and sell energy storage for buildings and the grid, and make and install solar panels.”
The analyst voices his concern towards Tesla acquiring another company while it is attempting to become profitable. Additionally, Selesky is worried that a deal would dilute Tesla’s shares too much. Shares were already diluted after its May 18th equity offering. If the acquisition is completed shares would dilute another 9%, totaling in a 14% dilution to existing Tesla shareholders.
Selesky notes the added risk that Tesla would be adding to its business by acquiring another money-losing company that raises cash to support expansion. He feels Tesla is bordering the line of unnecessary risk already having to deal with global economic conditions, changes in consumer preferences and manufacturing risks.
Overall, the analyst downgraded shares of Tesla to Hold, without providing a price target.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Bill Selesky has a yearly average return of 3.8% and a 61% success rate. Selesky has a -15.3% average return when recommending TSLA, and is ranked #745 out of 3980 analysts.
Out of the 22 analysts who have rated the company in the past 3 months, 41% gave a Buy rating, 36% gave a Hold rating and 23% gave a Sell rating. The average 12-month price target for the stock is $267.26, marking a 32.44% upside from current levels.
Following rumors that Intel is considering selling its McAfee cyber security unit, analyst Jim Kelleher of Argus provided his input on Intel’s current position.
Intel intends to reduce its workforce by 11% as it begins to exit non-core businesses and it turns its attention to Internet of Things, Cloud data center, and other core business. This includes the sale of McAfee, which provides software cyber security solutions, which Intel was unable to fully integrate it into its chip technology. The analyst believes it isn’t realistic to expect Intel to recover its $7.7 billion purchase, but anticipates Intel to receive $5 billion for the asset.
Intel, like most stocks, has declined following Brexit. Once the shock from Brexit subsides, the analyst believes Intel’s business will be largely unaffected. Prior to Brexit, Intel experienced heightened interest after reports that Intel’s thin modems would be put into AT&T’s iPhone 7 model. Kelleher anticipates a jump in Intel’s revenue, if this report is accurate.
Additionally, Intel has begun to restructure its PC operations due to a smaller PC global industry. It expects to collect $1.4 billion in savings by 2017. The analyst projects gross margins and operating margins will expand over the next several years if Intel is successful at “growing its focus areas while deemphasizing PCs.”
Kelleher maintained his GAAP EPS estimates for 2016 and 2017 at $1.94 and $2.37 per share, respectively. He states that Intel’s ability to bring in cash and pay out dividends of 3.3% per year is contributing to Intel’s shares appearing attractive compared to historical valuations.
The analyst maintains his Buy rating with a price target of $41, marking a 31.5% increase from current levels. Kelleher has a success rate of 55% with an average return of 6.2% per recommendation, according to TipRanks,
Out of the 30 analysts who have rated the company in the past 3 months, 70% gave a Buy rating, 20% gave a Hold rating and 10% gave a Sell rating. The average 12-month price target for the stock is $35.78, marking a 14.72% upside from current levels.