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Bull Cuts Price Target on Tesla Inc (TSLA) Stock, But Believes Brand Remains “Rock Solid”

Even withstanding lowered target expectations, Romit Shah still bets on 64% in return potential for TSLA shares.


Tesla Inc (NASDAQ:TSLA) investors are feeling skittish these days.

A National Safety Transportation Board’s (NSTB) investigation is currently pouring into a crash that has turned up speculation about the future of autonomous driving and their safety. The semiautonomous Autopilot mode in a Tesla Model X Uber was activated instants ahead of crashing into a California highway barrier, resulting in a collision that set fire- and the driver’s fatality. Shares were falling 5% yesterday amid volatility that has been chasing Tesla shares.

Nomura analyst Romit Shah continues to back Tesla, reiterating a Buy rating on the stock. That said, the analyst lowers the price target from $500 to $420, which all the same implies a 64% upside from current levels. (To watch Shah’s track record, click here)

Though Shah recognizes the stock has taken an almost 25% beating throughout the last 30 days, which far underperforms the NASDAQ performance of -4.5%, he spots Street-wide concerns as “superficial.”

“We remain constructive on TSLA, believing that much of the recent weakness is based on concerns (accounting, insolvency risk, and passenger safety) that are largely without merit. At the same time, we see significant momentum for alternative energy vehicles, an inferior competitive landscape and continued progress on Model 3 production driving more than 70% top-line growth this year, easily one of the fastest ever by a multibillion-dollar company,” asserts the analyst.

Reduced target expectations for Shah boil down to three key factors: “1) A reduction in large-cap tech multiples (AMZN, FB, AAPL, NVDA) that we comp against Tesla and a higher discount rate; 2) lower estimates due to Model 3 production constraints that have lingered beyond our initial expectations; and 3) a forecasted $3 billion capital raise at $250 per share (7% dilutive to current share count).”

Likewise, on back of less Model 3 deliveries, the analyst scales back his forecasts for the second quarter as well as for the full year. Shah reduces his Model 3 delivery expectations from 38,990 to 26,008 for the second quarter and from 194,948 to 153,054 for this year. Moreover, the analyst cuts his revenue projection from $5.6 billion to $4.6 billion for the second quarter and from $23.8 billion to $20.8 billion for 2018. EPS expectations are dialed down from -$2.32 to -$2.39 for the second quarter and -$4.65 down to -$6.01 for 2018. Free cash flow also gets chopped for Shah, who takes his forecast from -$687 million to -$1.17 billion in the first quarter, $156 million down to -$204 million in the second quarter, and from -$1.61 billion down to -$1.82 billion for the year.

Even anticipating Model 3 results to come up short of the production guide, Shah angles for substantial strides forward from TSLA in ramping deliveries as well as peak production in the first quarter. This is a company approaching resolution of production limitations- one that could become free cash flow positive by the close of this year.

“Despite the delays, Tesla’s brand remains rock solid, in our view,” cheers Shah, who spotlights customer and press buzz circling the Model 3 as “overwhelmingly positive.”

The bottom line still rings bullish for the analyst, who surmises: “We continue to see several positive trends that position Tesla for continued growth longer term.” After all, this is a tech giant ahead of the pack, whose rivals have largely been left in Tesla’s dust, “years behind.”

TipRanks indicates neutral sentiment looms large over the electric auto empire’s prospects. Out of 21 analysts polled in the last 3 months, 5 are bullish are Tesla stock, 10 remain sidelined, while 6 are bearish on the stock. With an encouraging return potential of nearly 22%, the stock’s consensus target price stands at $308.00, suggesting hints of optimism in the grander scheme.