Tesla Bears Lost Out This Round
Tesla Inc (NASDAQ:TSLA) CEO Elon Musk is surely smiling today after taking on the hungry bears and giving them a lot to be disgruntled about in the light of day. Company shares were already lifting off 2% yesterday and continue to soar 5% in pre-market trading today after the electric car giant delivered its second-quarter print with a highly encouraging progress update.
Oppenheimer analyst Colin Rusch is glad to see demand trajectory is on the rise, which he finds reassuring for the giant’s bigger picture. For Rusch, it remains a matter of whether CEO Musk’s brainchild can keep up the good work, from escalating demand to whether the launch of fully autonomous vehicles can prove “successful” long-term.
As such, for now, the analyst reiterates a Perform rating on shares of TSLA without listing a price target. (To watch Rusch’s track record, click here)
For the second quarter, Tesla posted revenue of $2.8 billion, handily topping consensus expectations of $2.52 billion. The giant likewise posted a better loss than anticipated, with non-GAAP EPS of ($1.33) compared to consensus of ($1.87). Auto revenue hit $2.3 billion in the second quarter, with Energy Generation & Storage revenue reaching $278 million, and Service/Other revenue bringing in $216 million. Automotive gross margin landed at 25.0% (non-GAAP), with shipments of 22,026 aligning with outlook at the start of July calling for a little past 22,000.
The Tesla team sees shipment growth in the back half of the year, with gross margin under 20% in the third quarter, compared to the Street’s forecast of 25.5%, which the analyst attributes to the Model 3 ramp dragging on the margin. Closing the year, Tesla has its eyes set on a 5,000 per week runrate on Model 3 production, with hopes to attain 10,000 per week for the mass market car. Capital expenditure guidance was set for $2 billion for the back half of the year.
Subsequently, the analyst has boosted his 2017 projections from $10.2 billion to $10.8 billion in revenue, from 24.8% to a gross margin of 23.7%, and from ($5.00) to ($4.95) in non-GAAP EPS. Essentially, the analyst has barely touched his 2018 forecasts calling for $15.4 billion in revenue, 28.3% in gross margin, and $1.64 in non-GAAP EPS.
Rusch underscores, “TSLA addressed a number of bear theses in its 2Q:17 call, notably guaranteeing production runrates for Model 3 (5k/week exiting 2017 and 10k/week in 2018), pointing to strong demand statistics, and guiding OpEx flat for 2H17. Management highlighted Model 3 net reservations at 455k (from 518k total) and indicating Model S and X orders trending higher, although order growth is coming from lower-end configurations. With guidance for flat operating spending in 2H17, the company is positioning to fulfill its promise to deliver meaningful operating leverage and progress toward potential for double-digit operating margins. That said, we believe bullish investors will be patient on earnings leverage and are more concerned about steady progress toward fully autonomous vehicles and transforming the transportation market.”
TipRanks analytics demonstrate TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 8 remain sidelined, and 4 are bearish on the stock. With a loss potential of 8%, the stock’s consensus target price stands at $298.50.
Fitbit Hits the Reset Button on Investor Sentiment
Fitbit Inc (NYSE:FIT) shares are gliding 3% today in pre-market trading following one more solid performance from the fitness wearables maker that Oppenheimer analyst Andrew Uerkwitz will help bolster investor sentiment for the back half of the year.
On the heels of “another clean quarter” and stronger “confidence,” the analyst reiterates an Outperform rating on FIT with a price target of $8, which represents a close to 52% increase from current levels. (To watch Uerkwitz’s track record, click here)
For the second quarter, the company brought $353.3 million in revenue and ($0.08) in non-GAAP EPS, outclassing Street expectations of $341.6 million in revenue and ($0.15) in non-GAAP EPS. Fitbit’s unit sales rose 13% quarter-over-quarter to 3.4 million units, with ASPs seeing a 4% sequential rise to almost $101. Non-GAAP GM rose to 42.7% thanks to strength in product mix, which saw a slight offset from Flex 2 price protection. Non-GAAP operating expenses dipped 7% year-over-year largely from marketing expenses that saw a decline- and fewer product launches.
For the third quarter, revenues were guided to a range of $380 to $400 million with non-GAAP EPS guided to a range between ($0.05) and ($0.02). Additionally, the FIT team lifted the bottom-end of guidance for 2017 with revenue taken from $1.50 billion up to $1.55 billion and non-GAAP EPS taken from ($0.44) up to ($0.40) to ($0.22). With the second-quarter outclass now factored into the analyst’s estimate, he follows suit by increasing his 2017 non-GAAP EPS expectations from ($0.28) to ($0.25).
Uerkwitz writes, “FIT noted guidance implies some new product sales in 3Q, but the vast majority in 4Q. […] we note IFA runs 9/1-9/6. FIT also revealed the margin profile of the smartwatch would be less than that of trackers—management stressed an affordable product was key for the company’s first smartwatch offering.”
In the grand scheme, Uerkwitz commends Fitbit for hitting the “reset” button on investor perspective, contending, “Despite the basic activity tracker market being under pressure, management delivered on its target of reducing US channel inventory as promotional pricing helped clear low-end Flex 2s to make way for 2H’s smartwatch launch—still on track. With investor expectations reset, we don’t think FIT has to return to the old model of over-promising high growth for the stock to work. If management can deliver on product and financial targets in the near term, we think the stock looks attractive as our estimates have the company exiting 2017 with cash & equivalents of ~$600M (over half of current market cap) and an increasing murmur of activity ex-hardware.”
TipRanks analytics indicate FIT as a Buy. Based on 8 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Fitbit stock, 4 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $7.08, marking a nearly 40% upside from where the stock is currently trading.