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Alex Cho

Tesla Motors Price Target Maintained at $160 from UBS

UBS analyst, Colin Langan reiterated his sell recommendation, and $160 price target. Of course, I’m dubious of the price target, but I’m documenting the commentary from the sell side, regardless.

Here were the key highlights from Langan’s most recent sell-side note:

Despite the current $3.4bn cash position, Musk stated on the call that increased cash burn will take TSLA "close to the edge," implying a potential capital raise in the near-term. With a minimum need of $1bn, this implies about $2.4bn in cash burn, consistent with our -$2.3bn 2017 estimate and up from -$1.4bn in 2016.

We are cutting our 2017 EPS estimate from -$2.80 to -$2.90 reflecting lower H1 deliveries and lower storage sales. We are maintaining our 2018-20 EPS estimates. Our $160 price target is based on our three-stage DCF.

While cash burn has been a long well-understood situation. I believe the concerns expressed by analysts were already embedded into shares prior to management ever saying anything on the earnings call. Of course, I could be wrong, but the dilution impact for further debt convertibles could diminish shareholder equity, but given my understanding of the dilutive impact, it doesn’t diminish the long-term investment case so significantly we wonder if cash burn/shareholder dilutions will substantially negate long-term per share earnings metrics.

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