Analysts Weigh In On Two Transportation Giants: Tesla Motors Inc (TSLA), American Airlines Group Inc (AAL)

Analysts are weighing in on the electric automotive giant Tesla Motors Inc (NASDAQ:TSLA) and domestic airline giant American Airlines Group Inc (NASDAQ:AAL), with a few insights and views.

Tesla Motors Inc

Tesla Motors launched the highly anticipated Model X on September 30 and claims it to be the world’s safest SUV. Tesla has also been in the news, just like other auto majors, following Volkswagen’s emission scandal.

After the launch of the new SUV, Baird analyst Ben Kallo maintained an Outperform rating on Tesla with a price target of $335, saying his firm continues to remain buyers of the stock.

Kallo believes the new Model X will boost Tesla’s image as well as help the company in expanding its consumer base. He says, “The vehicle’s expected best-in-class safety rating and innovative features should make the Model X one of the industry’s most desirable SUV’s.”

Referring to the specific features of the new vehicle, Kallo said, “The Model X earned official EPA ranges of 257 and 250 miles for the 90D and P85D, respectively, and 0-60mph times of 4.8 seconds and 3.2 seconds, respectively.” He added, “The air filter is 10x larger than a standard car, providing significantly more protection from airborne pathogens and pollution to match the air quality of a hospital operating room.”

The analyst estimates the market for premium luxury SUVs to be 235k to 300k vehicles, based on the number of premium SUVs sold in 2014.

He concluded with optimism by saying, “While the strong growth rates in the SUV market (16.3% CAGR from 2009-2014 in the U.S.) helps our confidence in our Model X sales forecasts, we also believe the X will attract an additional audience from traditional SUV buyers who may be willing to stretch their budgets for a high-performing electric SUV.”

According to TipRanks, Kallo has rated Tesla 36 times total, earning a 69% success rate recommending the electric car maker and a +28.5% average return per recommendation when measured over a one-year horizon and no benchmark. Overall, he has a 47% success rate recommending stocks and a +6.2% average return per recommendation.

In addition, Adam Jonas of Morgan Stanley maintained an Overweight on Tesla with a price target of $465. In the context of Volkswagen’s emissions scandal, Jonas highlighted the advantages available to electric car makers like Tesla. He said that these companies don’t have to incur any cost on vehicle emissions regulations; instead “they get paid for selling ZEV credits.”

Specifically referring to Tesla’s advantage, he said that while it’s easy to make an electric car, it’s very hard to replicate Tesla. He concluded, “It’s far harder to make a car with a completely in-house OS designed for machine learning via over-the-air updates to enhance energy storage, performance, mapping and autonomous features as the car is operated in the real world.”

Jonas has rated Tesla a total of 34 times, earning a 71% success rate recommending the stock and a +38.9% average return per recommendation when measured over a one-year horizon and no benchmark. Overall, he has a 56% success rate recommending stocks and a +17.9% average return per recommendation.

According to 17 analysts polled by TipRanks who have rated Tesla within the past three months, 10 are bullish on the electric car maker, 4 are bearish, and 3 remain on the sidelines. The average 12-month price target on the stock is $305.38, marking a 22.94% potential upside from current levels.

American Airlines Group Inc

Throughout the current year, investors have been concerned about the performance of airline stocks given fears related to overcapacity on flights. American Airlines Group has reduced its forecasted year-over-capacity growth to 1%, from its earlier estimate of 2%. In light of these developments, Tom Kim of Goldman Sachs weighed in on the stock.

Yesterday, Kim downgraded American Airlines to Neutral from Buy. Sharing his reasons behind this downgrade, he said, “Declines in unit prices have undermined this year’s share performance for the Airlines, causing the re-rating to pause. Our airline coverage is down 5.6% ytd, and the sector is now trading at only 8.4x 2016E P/E and 4.2x EV/EBITDA. We believe these valuations imply much greater risk to earnings than we think is justified.”

However, he has given credit to the airlines for the way it has utilized fuel savings. Kim said, “We think Airlines should be given credit for their disciplined capital allocation to date. In 2Q15, about 60% of the fuel savings went toward buybacks.”

While the analyst is optimistic about the airline sector overall, he feels American Airlines stock has a higher upside within his coverage. “On our estimates, American Airlines stock still has significant 12% potential upside to our six-month price target of $44 (from $48).” Kim adds, “We downgrade the stock to Neutral because there is greater upside potential within our coverage universe.” While the analyst is hopeful that the stock will gradually rerate and trade higher over the long term, this would be way beyond his valuation time horizon of 6 months.

Talking about other airlines, Kim was positive about Delta Air Lines, Inc.’s performance and said, “From buying secondhand planes to investing in airline partnerships like Virgin Atlantic, Delta is thinking outside of the box to generate superior returns.” He also expressed satisfaction about the operational progress shown by United Continental, while acknowledging the market hasn’t fully recognized it.

Based on ratings of 8 analysts on TipRanks who have recently rated American Airlines, 6 have rated the stock as a Buy while 2 have rated it as Hold; none of them have recommended to Sell the stock. The 12-month consensus price target for American Airlines is $55.71, marking a 43% potential upside from current levels.

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