(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of Tesla.)
Analysts appear to be growing more negative on shares of Tesla Inc. (TSLA), as the electric car maker gets ready to release second-quarter results on August 1. Over the past few weeks, analysts have not only been lowering their revenue estimates and widening expected losses for the coming quarter, but they have also been reducing their price targets. In a sign that perhaps some of the optimism around the stock is beginning to fade.
The company is expected to report a net loss of $2.79 per share, while revenue is seen climbing by 41% to $3.94 billion for the second quarter. All eyes will be on the ramp-up rate of the Model 3 and just how much money the business has left on hand to continue operations.
Over the past month, analysts have slashed their revenue estimates for the quarter by over 6%. With revenue now expected to be less than previously thought, analysts are now forecasting Tesla's loss to widen to $2.79 from a loss of $2.73 per share less than a month ago. The reduction in the revenue forecast is likely a result of the company falling short of Model 3 delivery expectations. (For more, see also: Tesla Falls as Traders Eye Deliveries Over Production.)
Cutting Price Target
The price target on the stock has also been steadily falling. Since the start of the year, analysts have reduced their price target on the stock by nearly 7% to an average of approximately $285, almost 5% below the current stock price of around $297. Of the 25 analysts covering the stock, only 28% rate shares a buy or outperform, while 32% rate shares a hold. Meanwhile, 40% of the analysts covering the stock rate shares an underperform or sell.
Tesla's cash position this coming quarter may even prove to be more critical to the analysts and investors than those revenue and earnings estimates. Tesla saw its cash and equivalents fall to roughly $2.7 billion at the end of the first quarter, dropping by 20% from the fourth quarter, as the company began ramping up production for the Model 3. How much cash Tesla has on hand following this quarter may raise questions and the need for an equity raise. (For more, see also: Is Elon Musk Making Things Worse for Tesla?)
Analysts do see things getting better for Tesla in the future, and even expect the company to start turning a profit in the fourth quarter. The big question is whether that will be soon enough to satisfy investors' demands.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.