Dismantling the Tesla Inc (TSLA) Bull Case and Questioning Intel Corporation’s (INTC) Return-Generating Power


Analysts are just not convinced when it comes to Tesla Inc’s (NASDAQ:TSLA) recent run on the heels of a welcome first-quarter delivery showing or Intel Corporation’s (NASDAQ:INTC) intriguing, albeit uncertain road map. One analyst is quite bearish on Tesla, deeming it naive to place conviction in the stock’s legacy, and goes as far as to take apart every reason for the bullish case. Conversely, one of Wall Street’s best-performing analysts explores Intel’s fundamentals from a neutral stance, highlighting a big question mark as to whether management’s long-term strategies will be worth it in time. Let’s take a closer look:

Tesla: A Fool’s Gold Fantasy

Tesla may have given investors reason to cheer once the electric car giant hit the bull’s eye for its first quarter delivery goals, surpassing expectations for a performance metric crucial to determining its level of success. Yet, Barclays analyst Brian Johnson is not swayed by the giant’s rally to a historic trading high as he believes the “articles of faith” for the bullish perspective are simply not “reality-based.”

Dismissing a market who puts faith in Tesla as just playing “make believe,” the analyst reiterates an Underweight rating on shares of TSLA with a $165 price target, which represents a 44% downside from where the stock is currently trading.

Johnson dismantles the four-part bull case, first countering the idea that ‘Tesla has a significant and sustainable cost advantage in battery packs,’ by pointing out that the disparity between the two is finding itself gradually pinches as “the scale advantages of legacy auto co’s to bridge the overall vehicle cost gap vs. Tesla.”

Secondly, the bulls will tell you that ‘Tesla has a significant lead in autonomous driving, meaning it will be the first by several years to achieve a fully self-driving vehicle.’ While Tesla has a leg-up on the autopilot technology rollout, the analyst fears “Tesla still lacks the industrial rigor and scale required for autonomous, in our view.”

Third, fans of CEO Elon Musk’s brainchild argue in the giant’s favor that Tesla is the Apple of the auto world, predicting ‘Tesla will be a dominant market share player in the auto industry, similar to the [Apple’s (AAPL)] iPhone in the cell phone business.’ But again- Johnson points out this line of reasoning stems from pipeline dream-founded conviction, and he is bearish on the reality of Tesla’s uphill supply-demand challenges ahead. “Ramp-up and manufacturing inefficiencies (and cash burn) may prevent Tesla from building to its demand,” warns the analyst.

Fourth, Johnson sees the bullish claim that ‘Tesla will dominate in areas outside of auto, like energy, mobility and insurance’ and raises an issue of fierce rivalry far riskier than bulls perceive. Considering “competition in energy storage is vastly underappreciated,” the analyst looks at Tesla as a dicey gamble.

Overall, Johnson continues to be critical on a “stock […] disconnected from fundamentals,” sizing up investors who see otherwise as optimists diverted by a mirage.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Brian Johnson is ranked #1,624 out of 4,556 analysts. Johnson has a 55% success rate and earns 2.4% in his annual returns. However, when recommending TSLA, Johnson loses 23.0% in average profits on the stock.

TipRanks analytics show TSLA as a Hold. Out of 16 analysts polled by TipRanks in the last 3 months, 4 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of 13%, the stock’s consensus target price stands at $258.64.

Intel Shares and Strategy Remain a Contradictory Conundrum

Top analyst Matt Ramsay at Canaccord surveys Intel like a riddle-charged sphinx with more questions than answers, leaving him staunchly on the sidelines as to the chip giant’s trajectory moving forward. In reaction, the analyst reiterates a Hold rating on INTC with a price target of $38, which represents a 5% increase from where the shares last closed.

The real issue is that while the analyst sees potential down the road for Intel, throughout the stint shareholders must endure to determine whether the giant’s investments spring to fruition, other rivals could prove to be more compelling options.

“Should management invest heavily into competitive new markets for growth that may prove margin-dilutive or focus to protect its traditional high-margin PC & data center franchises and reap the cash flow benefits while facing the risks of an increasingly capital intensive future? […] In the end, we agree with management’s long-term decision to invest for growth; however, turning a battleship like Intel takes time and we believe other stocks will generate more attractive returns during this period of prolonged transition, especially exiting a year with ‘peak’ gross margins and into a period of DCG margin compression and increased capital investment. We concede Intel shares generate a strong yield and remain inexpensive, but we believe shares could remain range bound as margins stagnate and until investors see proof that new investments in 10/7nm, automotive, IoT and memory are capable of generating strong returns within a reasonable time horizon,” Ramsay surmises, apprehensive that Intel as well as its management’s strategy present a “contradictory conundrum” to investors.

Matt Ramsay has a very good TipRanks score with a 67% success rate and a high ranking of #57 out of 4,556 analysts. Ramsay realizes 21.1% in his yearly returns. When recommending INTC, Ramsay yields 10.9% in average profits on the stock.

TipRanks analytics exhibit INTC as a Buy. Based on 29 analysts polled by TipRanks in the last 3 months, 15 rate a Buy on Intel stock, 12 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $40.71, marking a nearly 13% upside from where the stock is currently trading.

 

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