A Bullish Glimpse into Today’s Needle-Movers: Tesla Inc (TSLA) and Transocean LTD (RIG)


Tesla’s Model 3 Guidance Has the Bulls Charging

Tesla Inc (NASDAQ:TSLA) bulls get to have the last laugh today, with second-quarter earnings running circles around expectations, firing shares forward almost 7%.

Guggenheim analyst Rob Cihra for one is enthused with regard to the Model 3, which even though only just kicked off production last month, based on the company’s outlook, the mass-market car could yield a positive gross margin as early as the fourth quarter.

Therefore, the analyst reiterates a Buy rating on shares of TSLA with a $430 price target, which represents a close to 24% increase from where the stock is currently trading. (To watch Cihra’s track record, click here.)

For the second quarter, the electric car giant rocketed 120% year-over-year in revenue, bringing forth $2.79 billion, beating the analyst’s estimate of $2.46 billion as well as consensus of $2.52 billion. Additionally, Tesla posted non-GAAP EPS of ($1.73), which includes a nice lift in accounting from the company’s SolarCity non-controlling interests, topping the analyst’s forecast of ($2.30) and consensus of ($1.88).

Factoring in upside from the second quarter, the analyst takes his revenue expectations for 2017 from $11.8 billion up to $12.4 billion, which would indicate a 77% year-over-year rise, and EPS forecasts from ($7.79) to ($7.27). Meanwhile, higher expense leverage raises the analyst’s 2018 EPS expectations from ($2.51) up to $2.73, as he maintains: “[…] we continue to forecast volumes nearly tripling to >320K including 225K Model 3.”

Cihra notes, “Revenue gained from fewer vehicles now selling with residual value risk (historically depressed by GAAP lease accounting) and Tesla sold $100mil in ZEV credits. But we believe the big positive was Model 3 not only started production in July but Tesla is guiding the lower-priced car’s gross margin already turning positive in Q4E, something we had not previously forecast until 2Q18E, toward a target in 2018 of 25%. As opex scaling also starts to kick in, we continue to see Model 3’s volume ramp driving meaningful leverage off of Tesla’s high-fixed-cost structure, further raising our already-well-above-consensus estimates into 2018E-20E.”

While Cihra still keeps an eye on cash burn, he anticipates the giant will turn its cash flow from operations positive by this year, with free cash flow breaking even by next year as well as “meaningfully positive” by 2019 to 2020.

Overall, “Model 3’s ramp is likely to look like a big variable S-curve, but with Tesla so far saying it is confident it can produce >1,500 in Q3, reach a run-rate of 5K/week exiting 2017 and 10K/week by the end of 2018,” Cihra contends.

TipRanks analytics indicate TSLA as a Hold. Out of 18 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 8 remain sidelined, and 5 are bearish on the stock. With a loss potential of nearly 17%, the stock’s consensus target price stands at $289.60.

Bullish Parade for Transocean Shareholders

Transocean LTD (NYSE:RIG) handed in beats across the board yesterday, sending investors into a buying frenzy with shares shooting 8% today.

Consider that the biggest global offshore drilling company’s soaring triumph comes amid the Energy Select Sector SPDR ETF’s 0.5% dip.

Evercore analyst James West is out with a bullish research note, giving RIG’s prospects an upper hand advantage thanks to surprising strength in average dayrates coupled with operating and maintenance costs that fared better than even the management team had predicted.

In reaction, the analyst rates a Buy on the stock with an $18 price target, which implies a 92% increase from current levels. (To watch West’s track record, click here.)

West highlights, “RIG reported beats across the revenue, EBITDA and EPS lines, as average dayrates held up better-than expected while O&M costs came in below the company’s guidance. Recall guidance provided during the 2Q call did not incorporate the sale of 15 jackups to Borr Drilling on May 31. As a result, the cost driven beat may be discounted. Meanwhile, revenue efficiency weakened slightly but improved for the deepwater, harsh environment and midwater fleet, as the backlog at $10.2 billion declined by only 5.5%. Total liquidity at $5.5 billion declined 10% sequentially, comprised of $2.5 billion cash and a $3 billion revolver, as Transocean’s balance sheet strengthened from the jackup divestiture, a cash tender offer, and note issuance.”

TipRanks analytics demonstrate RIG as a Hold. Based on 8 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on Transocean stock, 4 maintain a Hold, while 3 issue a Sell on the stock. With a return potential of 11%, the stock’s consensus target price stands at $10.50.