Wall Street is not too upbeat on Tesla Inc (NASDAQ:TSLA) approaching the company’s first quarter delivery numbers- but one bull sees this as a good buying opportunity at play.
Baird analyst Ben Kallo may have scaled back his delivery expectations, but notes he buys ahead of first quarter deliver numbers: “we believe sentiment is overly negative and think TSLA could exceed lowered expectations.”
As such, the analyst reiterates an Outperform rating on TSLA stock with a $411 price target, which implies a 34% upside from current levels. (To watch Kallo’s track record, click here)
“The focus will be on Model 3 production rates exiting Q1, and we like the set-up headed into the release as expectations are low following recent pessimism on the name. Importantly, while TSLA may not reach an exit production rate of 2,500 Model 3s/week, we expect the company will within weeks,” asserts Kallo.
Though shares have been feeling the pressure of Model 3 apprehensions, Kallo finds these fears are overestimated in the market: “Pessimism around the delayed Model 3 ramp and quality concerns (which we believe are overblown) has pressured the stock in recent weeks and sentiment is extremely negative headed into deliveries. We are buyers into the release, which we believe is likely better than feared.”
Kallo predicts TSLA shares will “react positively,” considering production’s rise in the first quarter of the year and how “low” expectations hover. Though Model 3 production’s ramp is not as rapid-fire as the market might anticipate, Kallo believes the electric car giant is making progress, “getting closer to production targets.”
“Production has become more difficult to track as volumes have ramped, but with recent pessimism on the stock, we believe expectations are low. Importantly, we think production will be back-end loaded, which could cause deliveries to spill into Q2,” underscores the analyst.
Pointing to lesser-than-anticipated Model 3 production during the quarter, the analyst now calls for 8,000 Model 3s, likewise lowering Model S and X delivery expectations to 10,000 for each. For the first quarter, Kallo projects 10,000 Model S deliveries, 10,000. Before, Kallo had been forecasting 12,250 in Model S deliveries, 12,000 in Model X deliveries, and 10,000 in Model 3 deliveries. Moreover, the analyst dials back his Model S and X delivery numbers for next year on back of his expectation that the company will not bolster production sequentially- especially as he believes TSLA could hit the “refresh” button on vehicles in the intermediate term.
Though Kallo surmises understanding the delayed Model 3 ramp has odds to continue stirring up “significant skepticism” on the Street, he bets this giant can pull off its production goals “within weeks, not months.” Down the line, when the Model 3 finally ramps, the analyst looks for a big share driver waiting for TSLA.
TipRanks highlights a largely split Wall Street consensus assessing whether TSLA shares are worth the best. Out of 22 analysts polled in the last 3 months, 5 are bullish on TSLA, 9 remain sidelined, while 8 are bearish. With a slight return potential of 3%, the stock’s consensus target price stands at $313.44.