Morgan Stanley and UBS analysts explain their views on electric car giant Tesla Motors Inc (NASDAQ:TSLA) and e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) following the much-anticipated Model 3 reveal and possible plans to acquire a stake in a mapping company, respectively. While one analyst states a cash concerns and a lack of catalysts for Tesla prior to Model 3 delivery, the other believes Amazon will improve operational .
Tesla Motors Inc
UBS analyst Colin Langan offered commentary on Tesla following its Model 3 launch, citing concern over what will drive the stock prior to Model 3 delivery, expected only in late 2017.
Following the reveal, the analyst notes a positive media reaction to the car accompanied by long lines and better than expected initial orders of 135,000, compared to company guidance of 115,000. While “initial demand will create positive headlines” the analyst notes that orders from early adopters do not properly indicate a sustainable annual rate. He explains that many consumers are placing orders to take advantage of the $7,500 plug-in electric vehicle tax rate, which “begins to phase out the quarter after an OEM reaches 200,000 EV sales.” According to the analyst, TSLA will hit the 200,000 limit in mid-2018. The analyst also points out that some consumers are taking advantage of the strong demand by reselling their initial orders are a premium.
The analyst states an increased focus on EPS and cash flow for 2016 following the Model 3 launch, which will “rely on the Model S” and Model X. Although a “compelling Model 3” at half the price of Model S will generate over $135 million in cash, the analyst cites concern of declining Model S demand as a result. Related, although this cash level is impressive, “cash remains a concern,” due to increased production spending prior to Model 3 launch. Finally, the analyst reveals company plans to “double superchargers and store locations and triple destination chargers.”
The analyst reiterated a Sell rating on the company with a $140 price target.
Colin Langan has a 56% success rate recommending stocks with an average return of 14.9% per recommendation on TipRanks. Out of the 18 analysts who have rated the company in the past 3 months, 9 gave a Buy rating, 6 gave a Sell rating, and 3 remain on the sidelines. The average 12-month price target for the stock is $253, marking a 6% upside from where shares last closed.
Analyst Brian Nowak of Morgan Stanley weighed in on Amazon following news that the company may purchase a stake in high-definition mapping company, HERE. The analyst notes a recent trend of major automakers investing in such technology to develop self-driving capabilities. He explains 3 strategic reasons behind the possible decision.
First, the analyst explains that the company may want to acquire a stake in HERE for its cloud segment AWS as “part of a broader cloud deal.” He explains, “Cloud computing is essential for mapping especially as cars pick up increasing levels of self-driving capabilities, given the level of detail on the maps, live traffic updates, weather, potential V2V data and more.”
Second, Nowak believes Amazon may want to “access high quality mapping data” to develop in-house delivery trucks, as the company further optimizes its logistics business. He notes the key role that route planning and mapping have for “delivery efficiency” and believes that “an investment in HERE (and potentially leveraging its mapping technology) would help Amazon build out and in-house delivery network.” Nowak states that the ability of the company to “deliver its own Amazon Prime packages” could save Amazon $217 million -$1.5 in annual delivery costs in its top 10 U.S. metro areas alone. He continues, “Improved route efficiency (from better mapping technology, etc.) could make these savings even larger.”
Third, the analyst states that Amazon may explore a long-term option to develop autonomous delivery through trucks and drones, “where mapping technology is critical.” He states, “Given AMZN’s interest in drones, if it were to go a step further than Scenario 2 and look at a fleet of autonomous delivery trucks, mapping would be core to the function.” Nowak believes this potential stake will have effect Parcels such as UPS and FedEx negatively. He explains, “We remain negative on the Parcels (UW UPS, EW FDX) as we see twin threats from the selective insourcing at eCommerce giants at one end and omni-channel retail at the other that could put up to 15-20% of revenues at risk.”
The analyst reiterated an Overweight rating on the company with a price target of $800.
Brian Nowak has a 61% success rate recommending stocks with an average return of 6.7% per recommendation. According to TipRanks, out of the 36 analysts who have rated the company in the past 3 months, 32 gave a Buy rating while 4 remain on the sidelines. The average 12-month price target for the stock is $755, marking a 26% upside from where shares last closed.