Analysts explain their thoughts on electric car giant Tesla Motors Inc (NASDAQ:TSLA) and software giant Microsoft Corporation (NASDAQ:MSFT) prior to a product reveal and developer conference, respectively. Both believe the companies are well-positioned relative to competitors with Tesla set to reveal its Model 3 sedan while Microsoft provides product and strategy updates at its event.
Tesla Motors Inc
Analyst Adam Jonas of Morgan Stanley offers his insights on Tesla ahead of its much anticipated Model 3 release on Thursday. The Model 3 is the more affordable option of Tesla’s fleet the same level of high performance as other premium sedans. The analyst believes the reveal represents “an important catalyst to help bridge the gap between Tesla’s current valuation and capital consumption with its objectives of being a mass market player in electric transport.”
Jonas weighs in on various aspects of the model, estimating price, volume, and features. First, the analyst predicts an initial price of $35 k, though notes it can go up to $60 k with all of the available configurations. Jonas believes the company will start production by late 2017 and “expects the company to reiterate a group annual volume of 500 k units by 2020.” However, his “forecasts are significantly more conservative,” estimating Model 3 production in late 2018 and half the company guided sales volume, predicting only 229k units by 2020.
The analyst notes that although the entry level price of the Model 3 is more affordable than the company’s other models, the product will perform to Tesla’s standards. He explains, “Despite its more affordable entry level price, we expect the Model 3 to live up to the Tesla brand image as a ‘no compromise’ high performance car, with a high degree of (human) driving pleasure.” While he notes a “small performance gap” between the more expensive Model S, he “would be very surprised if performance specs such as acceleration and handling were not on par” with premium sedan competitors.
Commenting on the autonomous driving trend, Jonas states that at first, the Model 3 will “be meant for drivers who want to keep their hands on the steering wheel.” However, he believes the model will “offer a class-leading range of autonomous features,” that will improve over time. The analyst also mentions that like most vehicles, the Model 3 will be sold to private customers, though notes Tesla may have to adapt its strategy down the road. He explains, “Through a longer term lens, we believe this model may struggle to remain competitive as new competitors offer a greater variety of on-demand shared miles at more affordable prices and in more differentiated levels of service.”
The analyst states that despite Tesla’s early success, “the company has yet to be truly ‘disruptive’ to the automotive business model,” due to its traditional market approach. However, due to a rising competitive playing field, the company will have to adapt. He explains, “We believe upcoming applications of new technologies from many new, and even existing, players could potentially force Tesla’s hand into a pivot of the model.” Elaborating further, the analyst states that Tesla’s battery efficiencies do not constitute enough of a “competitive moat.” However, Jonas notes overall positive performance and good standing, stating, “While there are many evolving risks facing all companies participating in the auto industry with the introduction of new technologies, we view Tesla as relatively well positioned vs. many of its peers.”
The analyst reiterates an Overweight rating on the company with a $333 price target. According to TipRanks, Adam Jonas has a 50% success rate recommending stocks with an average return of 13.7% per recommendation.
As of this writing, out of the 16 analysts who have rated Tesla in the last 3 months, 8 gave a Buy rating, 5 gave a Sell rating, and 3 remain on the sidelines. The average 12-month price target for the stock is $24.86, marking a 7% upside from current levels.
Pacific Crest analyst Brendan Barnacle weighs in on Microsoft’s prior to their upcoming developer conference, Build. Following the analyst’s conversations with both staff and customers at Google Cloud Platform’s (GCP) last week, he has reason to believe that demand for the platform has increased. However, he does not believe this increase will weigh negatively on Microsoft’s Azure cloud platform, as he “repeatedly heard that Microsoft’s momentum remains robust among enterprises moving Microsoft workloads to the cloud.”
The analyst expects positive updates and more clarity on various Microsoft products at Build, including the Universal Windows Platform, mobile, HoloLens, Azure, and a strategy update for the internet of things (IoT). He states, “Overall, we expect fewer new-product announcements than last year, but more insight into the direction Microsoft is taking with its products”
The analyst cites a recent warning of continued weak demand for PC into CQ2. Although this data is not significant enough for the analyst to adjust his estimates, Barnacle will continue to keep an eye on PC demand. Although PC sales represent less than 20% of overall revenues for the company, it is Microsoft’s “most profitable” segment.
The analyst reiterated an Overweight rating on the company with a $65 price target. According to TipRanks, Brendan Barnicle has a 71% success rate recommending stocks with an average return of 12.8% per recommendation.
Out of the 23 analysts who have rated the company in the past 3 months, 16 gave a Buy rating, 2 gave a Sell rating, and 5 remain on the sidelines. The average 12-month price target for the stock is $57.86, marking a 6% upside from current levels.