Tesla announced its Q2 financial results after the closing bell yesterday, and management
shocked investors with a second consecutive quarterly profit.
Adjusted EPS came in at $US0.20. Analysts were looking for a loss of $US0.19.
The stock shot up to an all-time high of $US154 after the announcement, up 14% from the closing price.
“We increase our 6-month price target to $US95 from $US84 to reflect higher earnings estimates and is based on average stock price implied under 3 scenarios,” wrote Goldman Sachs’ analyst Patrick Archambault in a note to clients this morning.
Obviously, Archambault’s target is well below the current price.
But, he can’t justify today’s price even under his most optimistic scenario.
Archambault’s model is based on forecasts for 2018, which are discounted to present day. Here’s some colour:
“…In the first scenario, we assume total sales of 106K (Model S: 56K units, Next Gen: 50K) and operating margins of 15.4% implying an EPS of $US6.91. Layering on a 20x multiple given the growth prospects implies a value of $US138 which discounted at 20% implies a stock price of $US67. We then look at a bull case where we assume that TSLA will be able to get approximately 3.5% global market share in the entry lux and mid-lux category suggesting total volumes of 200K units. The 3.5% market share assumption is consistent with the typical 3-5 year share gains seen by the most successful industry players across multiple luxury sub-segments over the past decade. We assume an operating margin of 15.6% in this scenario as we see TSLA benefitting from better operating leverage given higher volumes. The implied stock price in this scenario comes at $US125. We also value Tesla in a mid-case where we assume volumes of 150K units and operating margins of 15.5% which is broadly the mid-point of the two scenarios. The implied price in this scenario is $US93. Finally, we take the average of these three scenarios to get our six-month target price of $US95…”
Under these three scenarios, Archambault is able to yield prices of $US67, $US93, and $US125.
Still, he has just a neutral rating on the stock.
“The primary risks are the sustainability of demand longer term,” he warns.