Wall Street can't keep up with Tesla: Morning Brief

Myles Udland

·Head of News

Updated Wed, Jan 15, 2020, 3:08 AM

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Wednesday, January 15, 2020

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Because the stock is up 200% since June

Wall Street is having trouble keeping up with the insane rally in shares of Tesla (TSLA).

On Tuesday, the stock closed at a record high of $537.92, gaining another 2.5% on the day and increasing its gains since the stock bottomed in June 2019 below $200, according to Yahoo Finance data.

As of Tuesday’s close, Tesla’s market cap stood at more than $96 billion, exceeding that of Ford (F) and General Motors (GM) combined. By $10 billion.

In the last two days, at least two Wall Street analysts have increased their price target on shares of Tesla to at least $600. Even the Tesla uber bulls at ARK Invest raised their long-term view on the stock on Tuesday, saying the stock could trade as high as $6,000 over the next five years, up from $4,000 per share.

But the Street is still badly lagging the stock’s rally — according to data from Bloomberg, the average price target on shares as of Tuesday stood at $354. As of Tuesday’s close, the spread between the stock price and the Street’s average price target widened to a record $183.

A rally of this magnitude in any name, however, presents investors with an almost unanswerable question: How much this rally is a case of shorts getting burned, and how much is investors rewriting Tesla’s fundamental story? Just a few months ago, that story had analysts questioning company’s financial future.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said Tuesday that just under 20% of Tesla’s float is currently being sold short. Since the start of January, Dusaniwsky says short-sellers are facing mark-to-market losses north of $3.1 billion on the stock, with short interest at the highest level since 2016. As Elon Musk once said, it appears to be “stormy in Shortville” right now.

Clearly, the pressure on short-sellers is a part of what’s happening in Tesla’s stock right now.

March 26, 2019 - Halifax, Canada - A 2019 red Tesla Model 3 plug-in electric car parked on a city street in downtown Halifax.

On Tuesday, Philippe Houchois at Jefferies became the second Wall Street analyst to bring their price target on the stock to north of $600. On Monday, Colin Rusch at Oppenheimer became the first analyst to join the $600 club, after slapping a $612 price target on the stock in a note to clients.

Houchois maintained a Buy rating on shares of the electric carmaker and raised the firm’s price target on Tesla by 50% — to $600 from $400. He said this new price target “starts to reflect Tesla's ability to pursue additional growth, notably in storage/generation and selling batteries to third-party OEMs.”

In Houchois’ view, Tesla shares trading at $500 prices in a car business growing at 20%, with margins around 8%-10%, for the next five years. And with shares trading north of this level, the company’s newfound balance sheet health “makes old and new growth opportunities viable, from battery tech to stationary and autonomy.”

Rusch said Monday that in his view, “the company has reached critical scale sufficient to support sustainable positive [free cash flow].”

Rusch added that with the company appearing to have resolved some of its manufacturing hiccups — like building cars in tents — “we believe TSLA is becoming a must-own stock and could benefit from inclusion in additional indexes.” Rusch has an Outperform rating on shares of Tesla.

But Wall Street commentary also shows analysts acknowledging that the concrete fundamental story on Tesla has improved. Even if the stock’s rally implies a scenario that exceeds more sober analysis.

Analysts at Deutsche Bank on Tuesday raised their price target on Tesla shares to $455 from $290 but maintained a Hold rating on the stock. The firm raised its 2020 revenue outlook and mid-term growth outlook for Tesla, writing in part that, “Tesla truly seems to be firing on all cylinders currently,” citing the start of production in China as well as the potential for a near-term ramp in Model Y production.

The firms worries, however, that “investor sentiment has gotten bullish too fast, ignoring some of the nearer-term execution risks.”

All of which leaves Tesla once again as the market’s most interesting story for investors to debate. A story that seems to require, at any one time, investors to decide whether they are all in or all out with little in between.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

7 a.m. ET: MBA Mortgage Applications, week ended Jan. 10 (13.5% prior)
8:30 a.m. ET: PPI Final Demand month-on-month, December (0.2% expected, 0.0% in November); PPI excluding Food & Energy month-on-month, December (0.2% expected, -0.2% in November); PPI Final Demand year-on-year, December (1.3% expected, 1.1% in November); PPI excluding Food & Energy year-on-year, December (1.3% expected, 1.3% in November)
8:30 a.m. ET: Empire Manufacturing, January (4.0 expected, 3.5 in December)
2 p.m. ET: Federal Reserve Beige Book

Earnings

Pre-market

5:55 a.m. ET: UnitedHealth (UNH) is expected report adjusted earnings of $3.78 per share on $61.07 billion in revenue
6 a.m. ET: BlackRock (BLK) is expected report adjusted earnings of $7.64 per share on $3.85 billion in revenue
6:25 a.m. ET: Goldman Sachs (GS) is expected report adjusted earnings of $5.49 per share on $8.54 billion in revenue
6:45 a.m. ET: PNC (PNC) is expected report adjusted earnings of $2.91 per share on $4.49 billion in revenue
6:50 a.m. ET: Bank of America (BAC) is expected report adjusted earnings of 69 cents per share on $22.38 billion in revenue