Tesla’s Model 3 Could Help the Giant Hit Full-Year Profitability in 2 Years

Tesla Inc (NASDAQ:TSLA) is a stock that bears love to grumble about, but CEO Elon Musk’s brainchild has converted one from the sidelines over to the bulls amid high Model 3 buzz anticipation.

Argus analyst Bill Selesky sees fit to flee all semblance of caution as he looks ahead to the fourth quarter of the year, where he is calling for robust Model 3 orders with the car due to debut in the market.

With new conviction weighing strongly in the electric car giant’s court, the analyst upgrades TSLA from a Hold to a Buy rating with a $444 price target, which implies a close to 21% increase from current levels. (To watch Selesky’s track record, click here)

With Tesla present-day racking up roughly 1800 Model 3 orders each day, “without any advertising or other marketing campaigns,” Selesky cannot help but spotlight a bright road ahead for the giant. “Although the ramp-up of the Model 3 will boost labor and overhead costs in the near term, we expect these additional costs to diminish over the course of 2018. As such, we believe that Tesla will be able to reach its 25% gross margin target on the Model 3 late next year, in line with the margins already achieved on the Model S and Model X. We are narrowing our 2017 loss estimate to $5.36 from $5.48 to reflect the 2Q results, which topped our forecast by $0.12. Our revised estimate assumes stronger gross margins over the remainder of 2017, with continued sales growth for all three models. We are also boosting our 2018 estimate to breakeven from a loss of $0.50 per share, reflecting our expectations for lower expenses and higher sales. We now look for Tesla to reach breakeven two quarters earlier than we previously expected and to achieve full-year profitability in FY19.Alphabet,” concludes Selesky.

TipRanks analytics showcase TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 7 remain sidelined, and 5 are bearish on the stock. With a loss potential of 13%, the stock’s consensus target price stands at $318.77.

Alphabet’s TAC and Margin Controversy Not a Long-Term Issue

Alphabet Inc (NASDAQ:GOOGL) may have stumbled one month ago, where even though the internet titan surpassed expectation on revenue and profit in its second quarter, the profit margin took a hit. In terms of traffic acquisition costs (TAC) and a margin that suffered from public outrage and a YouTube boycott on back of complaints pointing to controversial ads, it became clear that not even titans like Alphabet are immune to setbacks.

MKM analyst Rob Sanderson not only remains unshaken by Alphabet’s “TAC and margin controversy,” he anticipates good tides ahead for bullish Alphabet investors, even going as far as to lift his EPS expectations, predicting a surge in revenue in store- even with a margin that might not be as lofty. Growth stemming from Google Websites, Google Network, as well as additional revenue- plus the sliding margins- are arising on a wave of elevated TAC rate – keep Sanderson with confident eyes on the prize.

As such, the analyst reiterates a Buy rating on shares of GOOGL while hiking he price target from $1,170 to $1,210, which represents a just under 28% increase from where the stock is currently trading. (To watch Sanderson’s track record, click here)

Sanderson surmises, “The TAC rate for Google Websites increased by 234 bps y/y and 110bps q/q, one of the larger jumps in several years. Management continues to highlight mix shift to mobile search and emphasized that Q2 was a very strong quarter for mobile. It is also possible that YouTube contribution was lower this quarter in the wake of the ad boycott. A mix shift away from YouTube would tend to have an inflationary effect on Websites TAC rate and a deflationary effect on other cost of revenue (revenue share to content creators). Other cost of revenue was also higher than consensus forecast, driven by higher datacenter depreciation, YouTube content and hardware. Other cost grew by 26% y/y (non-GAAP), while other revenue (which includes cloud and hardware, among other sources) grew by 56%.”

TipRanks analytics exhibit GOOGL as a Strong Buy. Based on 32 analysts polled by TipRanks in the last 3 months, 30 rate a Buy on Alphabet stock while 2 maintain a Hold. The 12-month average price target stands at $1,103.46, marking a nearly 17% upside from where the stock is currently trading.