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There’s been a notable change in appetite for Tesla, Inc. (NASDAQ:TSLA) shares in the week since its first-quarter report, with the stock down 12% to US$701. Tesla beat expectations by 2.3% with revenues of US$6.0b. It also surprised on the earnings front, with an unexpected statutory profit of US$0.08 per share a nice improvement on the losses that the analysts forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. We’ve gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the most recent consensus for Tesla from 29 analysts is for revenues of US$27.2b in 2020 which, if met, would be a credible 4.4% increase on its sales over the past 12 months. Earnings are expected to improve, with Tesla forecast to report a statutory profit of US$0.20 per share. Yet prior to the latest earnings, the analysts had been forecasting revenues of US$27.4b and losses of US$2.33 per share in 2020. Although we saw no serious change to the revenue outlook, the analysts have definitely increased their earnings estimates, estimating a profit next year, compared to previous forecasts of a loss. So it seems like the consensus has become substantially more bullish on Tesla.
The consensus price target rose 23% to US$628, suggesting that higher earnings estimates flow through to the stock’s valuation as well. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Tesla analyst has a price target of US$1,100 per share, while the most pessimistic values it at US$240. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Tesla’s past performance and to peers in the same industry. It’s pretty clear that there is an expectation that Tesla’s revenue growth will slow down substantially, with revenues next year expected to grow 4.4%, compared to a historical growth rate of 41% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 15% next year. So it’s pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Tesla.
The Bottom Line
The most important thing to take away is that there’s been a clear step-change in belief around the business’ prospects, with the analysts now expecting Tesla to become profitable next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that said, the long-term trajectory of the company’s earnings is a lot more important than next year. We have estimates – from multiple Tesla analysts – going out to 2024, and you can see them free on our platform here.
Don’t forget that there may still be risks. For instance, we’ve identified 2 warning signs for Tesla that you should be aware of.