Tesla Inc (TSLA) Shares Worth the (Premium) Price, Time to Jump Into Netflix, Inc. (NFLX) Amid House of Mouse Sell-Off


Value Tesla Based on 2020 Expectations

Tesla Inc (NASDAQ:TSLA) made waves with its first ever junk bond sale of $1.8 billion at 5.30% interest, a step-up from the original plan to sell $1.5 billion in debt.

Guggenheim analyst Rob Cihra may see a sky-high priced stock short-term, but in a game of long-term bets, the analyst is convinced that by 2020, CEO Elon Musk’s electric car giant will be worth a big pay-off. With “meaningful” leverage anticipated from the Model 3, the analyst predicts the company’s first mass market vehicle will produce past 720,000 vehicles by 2020, juicing EPS surpassing $20 in just three years.

Though the analyst slightly pulls back on EPS projections to take under account the debt raise along with lofty operating expenses for next year that will fuel the Model 3 ramp, he reiterates a Buy rating on shares of TSLA with a $430 price target, which represents an 18% increase from where the stock is currently trading. (To watch Cihra’s track record, click here)

Cihra explains, “We also trim a bit more for a recent $3K price-cut on the Model X SUV and forecast slightly higher opex in 2018E as Tesla continues ramping up infrastructure to support the scaling volumes of Model 3. Directionally, however, our forecasts remain largely the same and well ahead of consensus, continuing to believe Tesla can turn profitable starting in 2018E, then scale EPS up to nearly $15 in 2019E and >$20 in 2020E, as ramping Model 3 volumes drive significant leverage off the high-fixed-cost structure it has been building.”

Ultimately, the Tesla picture is a bullish one down the line, as the analyst contends, “While recognizing TSLA remains expensive on near-term metrics, we continue to value it on 2020E numbers, expecting the ramp of its new Model 3 to drive revenue and margin growth for several consecutive quarters, as volumes now leverage off the high fixed-cost structure Tesla has been building.”

TipRanks analytics indicate 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 nearly 14%, the stock’s consensus target price stands at $312.92.

Netflix Can Live Without Disney

Netflix, Inc. (NASDAQ:NFLX) shares dropped off roughly 7% by last Thursday after news hit Tuesday that the House of Mouse intends to take its content from the video streaming giant by 2019 to kickstart its own direct-to-consumer streaming service.

While this is certainly a blow to Netflix to bid adieu to Disney’s distribution deal, Rosenblatt analyst Alan Gould recognizes the departure from a perspective that has not lost its confident sheen for NFLX. At the end of the day, Netflix is “already building more of its own content,” argues Gould, who sees a compelling investment prospect to invest in shares amid a time of this investor skepticism- a short-term concern, as far as he sees it.

Therefore, the analyst maintains a Buy rating on NFLX stock with a price target of $200, which implies a close to 19% increase from where the shares last closed.

Gould notes, “We believe the recent sell-off of NFLX shares, partially due changes in the Disney relationship, and partially to a risk-off trading environment, creates a buying opportunity for the stock. Netflix, in our opinion, is building a content moat and amortizing it over a global direct-to-consumer audience.”

By 2021, the analyst forecasts the giant will spend $15 billion annually on content, and a surge up to $25 billion in the next decade. It has the largest global subscriber base allowing it to be the lowest cost provider on a per subscriber basis. Furthermore, it has minimal distribution costs and as NFLX produces more of its own content it becomes the producer, distributor and retailer allowing it to maximize profit,” adds Gould.

It is not that Disney’s content pull is not “clearly a loss,” and Gould explains he certainly recognizes the “importance” of the House of Mouse’s move on out. However, by the time 2019 hits, the analyst sees 64 million domestic and 92 million international subs for the giant, and he believes Netflix will be doing just fine on its own, elaborating, “[…] until late 2019 NFLX domestic subscribers will have access to DIS’s new films released theatrically through the end of calendar 2018, likely ending with Mary Poppins Returns with Lin-Manuel Miranda. At that point, we estimate NFLX will have over 155 million global subs […] and will be adding over $12 billion of content annually to its streaming library.”

TipRanks analytics demonstrate NFLX as a Buy. Based on 31 analysts polled by TipRanks in the last 3 months, 21 rate a Buy on Netflix stock, 9 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $193.83, marking a 15% upside from where the stock is currently trading.

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