Here’s Why You Should Dump Tesla Inc (TSLA) and Consider Amazon.com, Inc. (AMZN)

A Bearish Look at Tesla Despite Model 3 Hype; A Bullish Take on Amazon's "Aggressive" WFM Price Cuts


Tesla Investors Are Caring More About Products and Cash Needs

Goldman Sachs analyst David Tamberrino has recently hosted a meeting with Tesla Inc (NASDAQ:TSLA) Vice President of Investor Relations Aaron Chew to discuss the Model 3 production ramp, gross margin realization, what new products are forthcoming, and the business’ cash generation. Though the electric car giant’s team spouts positivity on the launch progression for the mass-market Model 3, Tamberrino has not shifted from his bearish perspective, as he pinpoints a tax credit expiry circling as a headwind over the Model 3.

As such, the analyst reiterates a Sell rating on shares of TSLA with a $200 price target, which represents a potential downside of nearly 43% from where the stock is currently trading. (To watch Tamberrino’s track record, click here)

Tamberrino notes, “Overall, the company remains optimistic about its launch cadence (we still fall below company targets), but was more balanced on whether positive FCF generation will be achieved in the next 18 months (variable being new product launches). In addition, we update our model for the most recent debt raise; as a result, we now see the next capital raise in 3Q18 (vs. 1Q18 previously).”

Moreover, the analyst finds investors have increasingly shifted attention to incremental products as well as “cash needs,” no longer only valuing just the Model 3 launch, as there is a grander picture at hand, adds the analyst- even if he believes the launch and margins for the mass-market vehicle continue to be a “key near-term area for the stock.”

Next, the analyst fears R&D expenses could start to tower over Tesla, considering, “As Tesla is likely to continue to move forward with its new products (Model Y, semi-truck, Solar Roof, AV development, etc.), the incremental R&D spend and capex for capacity could continue to weigh –even if the underlying profitability of the Model 3 and operating leverage excl. new product development is achieved.”

A looming apprehension for Tamberrino points to Model 3 reservation holders and a federal tax credit for electrified vehicles that presently sits at $7,500, which denotes a prospectively meaningful decrease when assessing the overall consumer expense of the vehicle. Underscoring that as roughly 130,000 vehicles have been delivered to-date in the U.S. throughout the second quarter, the analyst observes merely a “small” group of reservation holders able to qualify for the full credit.

“As a result, we see further potential for reservation conversion headwinds the Model 3 –in addition to previously articulated concerns around price elasticity of demand and higher ASPs post unveil,” concludes Tamberrino.

The rest of the Street is screeched to the sidelines on the electric car giant, with TipRanks analytics showcasing 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 10%, the stock’s consensus target price stands at $314.08.

Exploring the Numbers Behind the Big Amazon and Whole Foods Alliance

In a glance at how the Amazon.com, Inc. (NASDAQ:AMZN) and Whole Foods deal will impact the online auction and e-commerce giant’s financial model, top analyst Mark Mahaney at RBC Capital is out with a bullish research note breaking down the numbers.

Following the deal, the analyst boosts his revenue expectations for 2018 up 8% to $224 billion, lifts his operating profit projection for 2018 up 10% to $9.0 billion, and bumps his 2018 GAAP EPS forecast up 4% to $9.79. However, “One challenge going forward will likely be limited disclosure by AMZN of WFM’s financial impact,” notes Mahaney.

When taking the giant at open assessment, the analyst expects an “aggressive” price cutting pursuit as well as a strategy focused on lessening the Gross Margin, elaborating, “i.e. we could see GM’s come down from 33% today to as low as 24% (comparable to Food Gross Margins @ Kroger & Walmart); we would expect to see some sales elasticity – i.e. Same Store Sales growth improving to as much as 6% (WFM’s 2013 levels); and we expect a modest level of opex efficiencies (5%, which is what Kroger generated from the Harris Teeter acquisition). The impact of our Most Aggressive Scenario by 2019 would be a 4% increase in our base-case WFM Revenue estimate and a swing in our base-case Operating Income estimate from a gain of $864MM to a loss of ($350MM).”

Bottom line: “To put all that in AMZN context, our Most Aggressive Scenario would imply a 7% increase in our stand-alone AMZN Revenue estimate and a 2% reduction in our standalone AMZN Operating Profit estimate,” Mahaney contends.

In light of the Whole Foods collaboration, the analyst maintains an Outperform rating on AMZN stock with a price target of $1,100, which implies a 15% increase from where the shares last closed.

Mark Mahaney has a very good TipRanks score with a 73% success rate and a high ranking of #14 out of 4,621 analysts. Mahaney realizes 23.6% in his yearly returns. When recommending AMZN, Mahaney yields 41.2% in average profits on the stock.

TipRanks analytics demonstrate AMZN as a Strong Buy. Based on 33 analysts polled by TipRanks in the last 3 months, 31 rate a Buy on Amazon stock while 2 maintain a Hold. The 12-month average price target stands at $1,173.96, marking a 23% upside from where the stock is currently trading.

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