Oppenheimer Weighs in on Tesla Motors Inc (TSLA) and AT&T Inc. (T) Ahead of Q3 Report and Amid Time Warner Merger

Oppenheimer is out with research reports diving into Tesla Motors Inc (NASDAQ:TSLA) and AT&T Inc. (NYSE:T), offering a neutral preview for TSLA as earning season rolls on and indicating a bullish outlook for T amid its new merger deal with Time Warner Cable. Let’s explore:

Tesla Motors Inc

As Tesla Motors prepares to deliver its third-quarter print on October 26th, Oppenheimer analyst Colin Rusch is highly anticipating the electric car giant’s new reporting structure when it comes to non-GAAP finances, as the company “winds down” its resale value guarantee (RVG).

Until the giant releases the final version of its new reporting methods, the analyst intends to wait to introduce adjusted estimates. However, Rusch notes he expects to cut back on his non-GAAP EPS projection and reiterates a Perform rating on shares of TSLA without suggesting a price target.

For the third quarter, the analyst projects $2.3 billion in revenue for TSLA with EPS of $0.21. For the fourth quarter, Rusch forecasts $2.4 billion in revenue and EPS of $0.51. For the year of 2016, the analyst expects the giant will yield $7.9 billion in revenue.

Rusch opines, “Given that TSLA already announced 3Q:16 deliveries, we believe investors will be focused on CFFO in 3Q:16, manufacturing margins, Model 3 timing, capital needs, and an update on the SCTY acquisition. Ultimately we believe the key driver for TSLA shares will be the company’s ability to facilitate widespread, ongoing adoption of the Model 3, which we believe is the heart of the bull thesis.”

Regarding the autonomous driving hardware shipping out in TSLA vehicles, Rusch adds that he observes cautiously, wary of a potential “drag” on gross margins due to added hardware coupled with prospective hold-ups in monetization.

“We anticipate the company will aggressively pivot to cash sales for solar, adjust pricing practices, moderate growth, and look to leverage TSLA stores. We note with 3M unique visitors TSLA has wide outreach, but store traffic and SCTY operations centers may not neatly align. We believe cash flow guidance will be essential for investors,” the analyst contends.

Looking at both TSLA’s products and finances, Rusch expects shipment guidance for the year will stay at 80K and above for 2016. However, he anticipating close investor introspection into the company’s two-year leases, lower end models, and options take rate.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Colin Rusch is ranked #426 out of 4,190 analysts. Rusch has a 47% success rate and realizes 8.3% in his annual returns. When recommending TSLA, Rusch yields 88.9% in average profits on the stock.

TipRanks analytics demonstrate TSLA as a Hold. Based on 11 analysts polled in the last 3 months, 2 rate a Buy on TSLA, 5 maintain a Hold, while 4 issue a Sell. The 12-month price target stands at $214.56, marking a nearly 6% upside from where the shares last closed.

AT&T Inc.

AT&T confirmed yesterday after week-long speculation that it will be acquiring Time Warner Cable in an $85.45 billion deal at $107.50 per share, split evenly between cash and stock. The deal is anticipated to close by late 2017. In reaction, Oppenheimer top analyst Timothy Horan reiterates an Outperform rating on T with a price target of $46, which represents a 25% increase from where the shares last closed.

As Horan assesses the merger in relation to the industry as a whole, “The transaction highlights the growing importance of OTT and mobile video, which will drive strong volume growth on networks/cloud across the board,” adding that he believes this was a “somewhat defensive” transaction on T’s part as it aspires for greater growth of OTT video, to help cut down on churn.

“The merger allows T to combine leadership in distribution (#1 video, #2 wireless, #3 broadband) with a portfolio of high-quality content. We think the deal can be ~4% accretive to EPS and FCF per share in 2018 with $1.5 billion pretax synergies. T’s stock usually trades sideways while large transactions are announced with outperformance the year after closing, which should take nine months. The transaction involves only a DOJ (not an FCC) review, and the DOJ has never turned down a vertical merger, but we expect significant political noise around the merger. We believe the transaction is positive for towers, datacenters, fiber, and CDNs,” Horan concludes.

Additionally, AT&T posted its third-quarter results yesterday with EPS of $0.74 “in line” and revenues of $40.9 billion, which Horan believes landed as a miss on back of a decline in handset upgrades as well as phone net adds. The company reported adjusted EBITDA of $13,596 billion, which was just over the analyst’s estimate of $13,533 million. Free cash flow (FCF) of $4,782 was a “beat,” thanks to “lighter capex” of $5.6 billion, under Horan’s estimate of $5.8 billion.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, top five-star analyst Timothy Horan has achieved a high ranking of #11 out of 4,190 analysts. Horan upholds a 72% success rate and garners 8.5% in his annual returns. When recommending T, Horan earns 6.9% in average profits on the stock.

TipRanks analytics indicate T as a Hold. Based on 15 analysts polled in the last 3 months, 3 rate a Buy on T, 9 maintain a Hold, while 3 issue a Sell. The consensus price target stands at $5.91, marking a nearly 6% downside from where the stock is currently trading.

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