Tesla Inc’s (TSLA) Road to Long-Term Leverage, Apple Inc.’s (AAPL) Superior Pricing Power


Analysts from UBS and Bernstein explore the role Tesla Inc (NASDAQ:TSLA) is paving in a disrupted automotive market, and the strong position Apple Inc. (NASDAQ:AAPL) has honed in an atmosphere of surmounting competition. One analyst initiates coverage on Tesla from a cautious perspective due to near-term worries, but long-term recognizes the electric car giant’s powerful potential to secure profitability, while another turns to ideologies from fellow colleagues to examine why Apple stands to rise through the turmoil of tug-of-war against powerful tech stocks, rendering it anything but fragile.

Let’s take a closer look:

Tesla’s Role as Catalyst for the Automotive Market

In a research report, Bernstein analyst Toni Sacconaghi initiates coverage on shares of Tesla with a Market Perform rating and a $250 price target, which represents nearly 2% increase from where the stock is currently trading.

Down the road, the analyst highlights the electric car giant’s driving impact on the adoption of electric vehicles (EVs), predicting a future where EVs comprise 40% of the auto market in the next two decades (and more than half by the year 2050). Yet, Tesla’s short-term challenges have led Sacconaghi to chime in from the sidelines for now.

For the bullish case, the analyst underscores, “We believe that Tesla has three key advantages: (1) a lead in battery technology cost; (2) unparalleled consumer awareness and brand; & (3) vertical integration that is not only brandreinforcing, but creates material cost savings in distribution – collectively these advantages could translate into an 800 bps+ profitability advantage long term vs. traditional OEMs.”

However, “While we are bullish about Tesla’s long-term potential, we have several near term concerns, most notably (1) gross margins, as Model 3 and its associated capex ramps up, and (2) Tesla’s overall customer experience – which we believe is not strong today – and could be further pressured as the company migrates to selling to a more mass-market consumer. A poor ramp and customer experience on Model 3 could not only impact Tesla’s near-term financials, but undermine the franchise longer-term,” Sacconaghi concludes.

According to TipRanks, five-star analyst Toni Sacconaghi is ranked #139 out of 4,515 analysts. Sacconaghi has a 69% success rate and realizes 21.7% in his annual returns. When recommending TSLA, Sacconaghi earns 0.0% in average profits on the stock.

TipRanks analytics indicate TSLA as a Hold. Out of 18 analysts polled by TipRanks in the last 3 months, 6 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of nearly 1%, the stock’s consensus target price stands at $243.25.

Apple’s Adaptability Sharpens Its Competitive Edge

When assessing the big FANG four – the leading tech giant stocks that comprise of Facebook, Apple, Netflix, Inc. , and Google – UBS analyst Steven Milunovich agrees with industry analyst Horace Dediu that Apple’s standing in the fray is stronger than it seems. Investors are taking notice amid a bolstered services segment and a growing installed base.

In particular, Milunovich takes heed of this assessment, as Dediu’s claim to fame was built on back of insights into the tech giant’s business mindset coupled with astute calls on AAPL’s financial picture.

From the eyes of Milunovich, “Although Apple is viewed as less powerful than its large cap tech brethren, it exhibits superior pricing power. Indeed, Warren Buffett has been convinced that Apple has a moat similar to Coke and Wells Fargo.” Therefore, the analyst reiterates a Buy on AAPL with a price target of $151, which represents a just under 9% increase from where the shares last closed.

Ultimately, “Antifragility is Nassim Taleb’s concept and refers to things that benefit from volatility and change. We have applied antifragility to our group and to Apple specifically. Horace makes the case that because Apple may face more threats than FANG, it is developing a greater ability to compete and adapt. He says its three competencies are (1) an ability to be either integrated or modular as circumstances require; (2) a relentless focus on the job to be done; and (3) being in a constant state of high competition keeps attention on the product. Conversely, problem signs would be complacency, platform mistakes, or unwillingness to cannibalize itself. Horace points out that Apple always has been a single-product company but the product changes,” Milunovich surmises.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Steven Milunovich is ranked #1,108 out of 4,515 analysts. Milunovich has a 53% success rate and gains 3.8% in his yearly returns. When recommending AAPL, Milunovich yields 12.7% in average profits on the stock.

TipRanks analytics exhibit AAPL as a Buy. Based on 37 analysts polled by TipRanks in the last 3 months, 28 rate a Buy on Apple stock, 7 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $145.79, marking a 5% upside from where the stock is currently trading.

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