When it comes to the power clash of which titans stay on top, standing the test of time, analysts are trusting their luck on two of the tech industry’s leading giants: Tesla Inc (NASDAQ:TSLA) and Facebook Inc (NASDAQ:FB). Tesla and Facebook are proving themselves with their strategic chess moves five steps ahead of the competition, with Tesla making trucks a new priority and Facebook readying to make itself a viable player in AR. Let’s take a closer look:
Tesla Adds Trucks to Its List of Power Plays
Tesla is trucking along into a new market, adding trucks to its mass-market vehicle as CEO Elon Musk’s latest serves to consumers. Hoping to become an original equipment manufacturer (OEM) for trucks, the electric car giant is ready to parlay against the likes of Paccar and Cummins, swinging full throttle.
Morgan Stanley analyst Ravi Shanker sees this move as a logical one for the giant, reiterating an Overweight rating on shares of TSLA with a $305 price target, which represents a slight almost 1% increase from where the shares last closed.
First, the analyst explains, “Tesla is looking to branch out into other verticals in the transportation space as part of CEO Musk’s Master Plan and commercial trucks appear to be a good segment […]”
Second, “It may be about services,” underscores Shanker, adding, “We believe Tesla could conceivably sell a truck without a battery (thereby significantly lowering the upfront cost) and offer battery swapping as an alternative to putting a large battery in the truck. We estimate that if Tesla charges $0.25/mile to lease the battery, this could be a big win for both trucking carriers and Tesla”
Third, the analyst opines, “The incremental investment may not be significant…We estimate a total upfront capital cost of $1.7 bn to enter the Truck segment (including the swapping stations).”
Ultimately, “Trucking could allow Tesla to enter the Services market, bringing sustained revenues (and data),” Shanker surmises, finding this as “real” first swing at bat that could bring in approximately 10% of the total addressable “quite large” market. Yet, even 10% of the new domestic truck market could be worth $2.5 billion in yearly revenue from the analyst’s eyes, or the equivalent of 70,000 base Model 3s.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Ravi Shanker is ranked #1,599 out of 4,562 analysts. Shanker has a 60% success rate and realizes 3.2% in his annual returns. When recommending TSLA, Shanker yields 26.0% in average profits on the stock.
Dougherty analyst Charlie Anderson likewise sees Tesla’s potential, as Musk has built a legacy brand. Still quite confident on the giant’s long-term, but scaling back expectations just a bit for the short-term, the analyst reiterates a Buy rating on TSLA while reducing the price target from $500 to $375, which represents a close to 24% increase from where the shares last closed.
“We inherited coverage of TSLA from Andrea James ~9 months ago and have reiterated the $500PT she set in April 2016 (when the stock was $230) ever since. We note the $500PT was based on a multiple applied to prospective 2025 earnings, discounted back. Admittedly, this was longer-term target. In order to gain consistency with the 12-month Price Target view of the rest of our coverage universe, we are going to lower our PT to $375, which is based on 30x our new FY20 EPS of $12.49. We note that we expect TSLA to grow at a 35% CAGR from FY17 to FY20 and thus see this as a fair multiple. Finding this level of growth from a company of this size is very difficult in this market. We continue to believe Tesla has a substantial lead in battery technology over other automakers and a powerhouse of a brand (350K+ reservations for a car with no advertising),” contends Anderson.
According to TipRanks, Charlie Anderson is ranked #835 out of 4,562 analysts. Anderson has a 61% success rate and earns 12.7% in his yearly returns. When suggesting TSLA, Anderson gains 31.4% in average profits on the stock.
TipRanks analytics show TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of 9%, the stock’s consensus target price stands at $274.55.
Facebook Winning at the Innovation Game
Facebook has captivated analyst attention recently after holding its annual F8 Developer Conference in San Jose this week, highlighting clear emphasis on Augmented Reality as a future battle field- and one FB is ready to tackle.
Cantor analyst Kip Paulson applauds the social media titan for its triple-threat advantage of “unmatched scale”-meets-“innovation”-meets-impressive free cash flow, reiterating an Overweight rating on shares of FB with a $175 price target, which represents a just under 22% increase from where the stock is currently trading.
In fact, Paulson anticipates that augmented reality and virtual reality could pull through an over $100 billion market opportunity in just the next three years. Though Mark Zuckberg’s brainchild may “not significantly move the needle over the next year or two” with its initial AR/VR footsteps, the sheer massive market prospects waiting in the wings by 2020 are “hard to ignore.” It is smart for FB to capitalize early as AR takes “center stage.”
Giving the competitive edge to FB, the analyst notes, “While Facebook’s new focus on the camera and the addition of Snap-like Stories and camera effects to core Facebook apps in recent months is a clear broadside to Snap, a new developer platform (Camera Effects) and other innovations (including Facebook Spaces) demonstrate Facebook’s broader AR/VR aspirations and an overall pace of innovation that outpaces peers.”
Meanwhile, “Camera Effects Platform & Facebook Spaces show great ambition/ leadership in AR/VR,” continues the analyst, who explains, “While Facebook has received a fair amount of flak for copying Snap-like Stories and camera effects into its core apps in recent months, this was just laying the groundwork, in our view.” Highlighting the Camera Effects Platform as unique, for no other developer system for AR has been created yet, the analyst believes the developer community will appreciate these tools to access AR via a social platform that boasts around 1.9 billion monthly active users (MAUs) as well as 5 million active advisers and developers circling a hundreds of thousands range.
Overall, as Messenger 2.0 just “gets smarter,” and the titan continues to reinvent itself, “Facebook’s unmatched scale/ engagement (~1.9B MAUs), highly targeted and lucrative mobile/video ad units, and the rapid pace of innovation at the company keep us positive,” Paulson concludes.
According to TipRanks, Kip Paulson is ranked #1,551 out of 4,562 analysts. Paulson has a 73% success rate and collects an average return of 12.3%. When rating FB, Paulson garners 19.8% in average profits on the stock.
TipRanks analytics indicate FB as a Strong Buy. Based on 37 analysts polled by TipRanks in the last 3 months, 35 rate a Buy on Facebook stock while 2 maintain a Hold. The 12-month average price target stands at $163.84, marking a nearly 14% upside from where the shares last closed.