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Tesla shares have risen nearly 290% so far this year and 526% in the past year.
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Electric vehicle maker Tesla reports earnings after the close of operations on Wednesday. The report, and the subsequent reaction to the stock price, should be wild. This is Tesla, after all.
This is what you should pay attention to, along with some recent history.
- Wall Street expects the company to lose 14 cents a share on $ 5.1 billion in sales. But both numbers look stale.
- Tesla (ticker: TSLA) delivered more vehicles than expected in the second quarter, as well as more vehicles than in the profitable first quarter, but Wall Street has been slow to catch up. Estimates of earnings for the pandemic-hit second quarter, when car production halted in the United States, fell below $ 2 a share before quickly recovering in July, after delivery numbers for vehicles. Second-quarter sales estimates fell below $ 5 billion and are climbing higher.
- Wall Street “whisper numbers”, which are essentially the most up-to-date estimates on the street, but not reflected in published research, are about 50 to 75 cents in earnings per share. Better than that is likely to trigger a positive reaction from the stock price.
- No matter what is reported, the size of the reaction, positive or negative, is difficult to determine. Option markets are priced in a subsequent profit move, up or down, from 15% to 20%. That’s a big move, involving a $ 300 price change and up to $ 60 billion of market value.
- The inclusion of stocks in the S&P 500 is one of the reasons for the huge potential change. If Tesla posts a profit in accordance with generally accepted accounting principles, or GAAP, it will most likely be added to the index.
- Adding an index creates new demand for fund stocks that follow the S&P 500 as they rebalance portfolios to adjust for the change. It could amount to the purchase of millions of Tesla shares. More buy than sell increases stock prices, but the size of the indexing profit for the shares is debated.
- After all, Tesla shares are up nearly 290% so far this year and 526% in the past year, crushing comparable S&P and Dow Jones Industrial Average returns in the same span. The earnings have made Tesla the most valuable automotive company in the world as measured by market capitalization.
- According to Wall Street research reports, indexing is now taken for granted. That means a GAAP loss appears to be the biggest risk to Tesla’s shares in the quarterly report.
- Beyond the inclusion of the index, investors should look for news about China. “China is a key player in Tesla’s growth history in [the second half] and 2021, ”Wedbush analyst Dan Ives wrote in an investigative report Monday. He believes demand for electric vehicles is accelerating in China, a positive for all electric vehicle manufacturers, including Tesla. Ives rates Tesla’s shares as Hold equivalents and has a price target of $ 1,250 for the shares.
- Regulatory credits are always a big problem for Tesla bulls and bears. The company can sell zero emission vehicle credits to other automakers who need to meet California’s emission standards. The amount of credits sold can affect the reported earnings from quarter to quarter.
- Analysts are generally a bit more cautious than they were heading to the earnings report. Tesla bull Joseph Osha, for example, downgraded the shares to Hold on Tuesday, saying most of the good news was pretty much reflected in the stock price. Osha was the first analyst to break the $ 1,000 price target barrier in March.
- In addition, Credit Suisse analyst Dan Levy warned in a July 16 report that a hiccup could lead to a correction in the stock price. Levy rates share the equivalent of Hold and have a price target of $ 1,400. CFRA analyst Garrett Nelson downgraded his Hold to Sell rating, while maintaining his $ 1,100 price target on July 17. Baird analyst Ben Kallo wrote on July 17 that the risk / reward was negatively biased in earnings. Recommended investors take profit Kallo rates Hold shares and has a price target of $ 984.
- Most recent analyst comments are primarily about valuation. Most of them, while concerned with value, also point out that recent results and business execution have been better than expected.
Whatever happens to the action on Wednesday night, it qualifies as a must-see for all market dwellers.
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