Morgan Stanley analysts separately explain why they are cautious on electric car giant Tesla Motors Inc (NASDAQ:TSLA) and entertainment giant Walt Disney Co (NYSE:DIS), as more questions arise about Tesla Autopilot and vehicle safety, and Disney’s media networks segment is currently under pressure. Let’s take a closer look.
Tesla Motors Inc
Recent crashes of Tesla cars that were in autopilot have provoked a federal investigation and raised consumer and investor questions over the benefits and risks of advanced ADAS technology and the responsibilities of the OEM.
Morgan Stanley analyst Adam Jonas believes that as the size of Tesla’s fleet grows, the incidence of traffic fatalities will rise materially. He noted, “While Tesla’s vehicles are newer and achieve a higher crash rating than the average car, we merely point out that even a safety record of 2x the average car on US roads would imply a handful of fatal crashes each year. According to the same data from NHTSA (released July 1,2016) there were 35,200 fatalities for the full year 2015 (+7.7% YoY) for an average of more than 96 fatalities per day or slightly more than 1 death every 15 minutes on average.”
In terms of marketing, the analyst believes that the name ‘Autopilot’ could create a consumer expectation problem and a potential moral hazard: “When you hear the world ‘Autopilot’,you may think of technology for commercial airline pilots which temporarily relieve the human operator from using the aircraft controls. In fact, Tesla Autopilot is meant to be a driver assist and when activating the system, the driver is presented with a warning that he is meant to keep his hands on the wheel at all times to ensure safe operation of the vehicle. Unfortunately, some drivers may be tempted to explore the novelty factor of the system in ways that expose themselves, fellow passengers and other vehicles on public roads to great danger.”
Jonas reiterated an Equal-Weight rating on shares of Tesla Motors, with a price target of $245, which implies an upside of 11% from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Adam Jonas has a yearly average return of 9.8% and a 47.0% success rate. Jonas has a 21.7% average return when recommending TSLA, and is ranked #385 out of 4060 analysts.
Out of the 26 analysts polled by TipRanks, 11 rate Tesla stock a Buy, 9 rate the stock a Hold and 6 recommend a Sell. With a return potential of 20.5%, the stock’s consensus target price stands at $266.87.
Walt Disney Co
Morgan Stanley analyst Benjamin Swinburne reiterated an Equal-Weight rating rating on shares of Walt Disney, with a price target of $105, which represents a potential upside of 5% from where the stock is currently trading.
Swinburne wrote, “M&A execution has allowed “Disney IP” to achieve structurally higher returns than competitors and its own history, but growth needs to continue given pressures at “Disney Media.” Disney’s Studio, Consumer Products & Interactive,and Parks segments (which we collectively nickname “Disney IP” and which represent just over 50% of segment OI in FY16) have expanded aggregate EBIT margins by ~1,200bp over the last 5 years,and are collectively operating 800-900bp above the prior peak level. This reflects many factors, but is primarily a function of the successful integration of acquired IP (Pixar, Marvel, Lucasfilm). “Disney IP” has delivered 70-80% of Disney’s overall EBIT growth in FY14 and FY15,and likely over 100% in FY16E.”
According to TipRanks, analyst Benjamin Swinburne has a yearly average return of 10.1% and a 63.5% success rate. Swinburne has a 1.0% average return when recommending DIS, and is ranked #436 out of 4060 analysts.
Out of the 32 analysts polled by TipRanks, 16 rate Walt Disney Company stock a Buy, 14 rate the stock a Hold and 2 recommend Sell. With a return potential of 11.9%, the stock’s consensus target price stands at $111.90.