Another quarter, another home run for Tesla (TSLA). After the closing bell Wednesday, the company posted its results for Q2, with the numbers blowing Wall Street’s forecasts right out of the water. Not to mention, Musk & Co. once again defied the naysayers by reissuing its original FY20 unit delivery target of 500,000 units.
Looking more closely at the print, total revenues came in at $5.18 billion, compared to the Street’s $5.15 billion call. As for EPS, it flew past the -$0.02 estimate, with the actual result landing at $0.50, making S&P 500 inclusion even more likely.
Writing for Wedbush, five-star analyst Daniel Ives highlights another aspect of its performance, one that has been highly publicized. Turning to its delivery numbers, he points out that against the backdrop of the pandemic, TSLA went above and beyond expectations, but this was already known. As such, he argues that the real focus is on the company’s profitability.
During the quarter, GAAP gross margin was 21%, another result that beat the consensus estimate. The company also reported adjusted EBITDA of $1.2 billion and a margin of 20%, up from $572 million and a margin of 9% in the prior-year quarter.
According to Ives, this outcome “speaks to a business model which continues to have significantly lower costs and more production efficiency even in the face of challenging circumstances globally given COVID-19.” The analyst added, “This sustained level of profitability is key for the bulls and speaks to a business model which is staying out of the red ink despite this unprecedented COVID-19 dark storm.”
When it comes to the company’s presence internationally, China was the “star of the show.” In the country, EV demand is on the rise, with Tesla competing with several domestic and international competitors for market share. It should be noted that Giga 3 is still “the linchpin of success which remains the prize that Musk and Tesla are laser focused on capturing.”
“To this point, strong Model 3 demand out of China remains a ray of shining light for Tesla in a dark global macro and appears to be on a run rate to hit 150,000 unit deliveries in the first year out of the gates for Giga 3 which is driving some strength for Tesla as well as Model Y deliveries starting to ramp as well. We believe that the China growth story is worth $400 in a bull case to Tesla as this EV penetration is set to ramp significantly over the next 12 to 18 months, along with major battery innovations coming out of Giga 3 (million mile battery remains an elusive goal now in the grasp in our opinion),” Ives explained.
While all of the above is promising, Ives remains on the sidelines due to valuation concerns. To this end, he reiterated a Neutral rating and $1,250 price target. This figure implies shares could drop 19% over the next year. (To watch Ives’ track record, click here)
The rest of the Street has come to a similar conclusion. Out of 27 total reviews posted in the last three months, 4 analysts rated the stock a Buy, while 13 said Hold and 10 suggested Sell. At $1,275.68, the average price target indicates downside potential of nearly 16%. (See Tesla stock-price forecast on TipRanks)
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