Tuesday, February 4, 2020

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Tesla shares have a mind of their own

A little less than three weeks ago we chronicled the trouble Wall Street analysts were having keeping pace with Tesla (TSLA) stock.

Since then, the situation has not improved.

On Monday, investors witnessed one of the wildest days of trading in a mega-cap name you’re likely to see.

The stock gained 19.89% — or $129.43 per share — on Monday to close at $780 per share, a record closing high for the stock. Earlier in Monday’s session, Tesla shares changed hands at an all-time intraday high of $786. As of Monday’s close, Tesla’s market cap was $138 billion, putting the company’s market value higher than that of Costco (COST), Phillip Morris (PM), and IBM (IBM).

View photos Tesla's stock price has had a parabolic run during the last six months, gaining nearly 250% over that period and doubling since the week before Christmas. (Source: Yahoo Finance) More

Not bad for a company that delivered 367,500 cars in 2019 and recorded a full-year net loss of $775 million.

And in keeping with the theme of analysts trying to fit a fundamental case for Tesla to the stock’s rally, analysts at Argus slapped a new Street-high target of $808 per share on Tesla in a note published Monday. The firm reiterated its Buy rating on shares and raised its price target from $556.

“Our positive view assumes continued revenue growth from the legacy Model S and Model X, as well as strong demand for the new Model 3, which accounted for more than 80% of 4Q19 production,” Argus writes.

“Despite past production delays, parts shortages, labor cost overruns, and other difficulties, we expect Tesla to benefit from its dominant position in the electric vehicle industry and to improve performance in 2020 and beyond.”

Argus’ view on the name is, more or less, what the Street consensus has become on Tesla — there used to be lots of problems believing the delivery numbers would live up to Elon Musk’s hype and the company’s losses and cash positions were certainly a problem, but now those stories are mostly fixed.

Of course, a lot of this view is coming straight from the horse’s mouth. In its fourth quarter investor presentation, Tesla said it expects vehicle deliveries will “comfortably” top 500,000. And on the cash front — which was a big concern for the market in early 2019 — Tesla said, “We expect positive quarterly free cash flow going forward, with possible temporary exceptions, particularly around the launch and ramp of new products. We continue to believe our business has grown to the point of being self-funding.”

Tesla said in its fourth quarter presentation that 2019 was a “turning point” for the company. The market certainly agrees. From the June 3, 2019 closing low just below $179 per share, Tesla shares have more than quadrupled.

The other side of this trade, of course, has been painful. Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said Monday that the mark-to-market losses suffered by short sellers from 2016-2020 is around $16 billion. S3’s data suggests losses in 2020 alone are north of $8 billion.

And as one Twitter user asked Monday, what stock has made more smart people look dumb than Tesla over the last decade? We’re hard pressed to find a counterexample.

And it seems unlikely that for investors, analysts, and the Tesla-curious in between, the stock story will get less interesting. Will coronavirus hamper output at Tesla’s new Shanghai gigafactory? Will Model Y production ramp as quickly as the company expected? And what about the Cybertruck?

But the simplest question facing Tesla investors in the weeks and months ahead is the hardest one to answer — how does the change in a company’s share price influence your view of the business? And why?

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

What to watch today

Economy

10 a.m. ET: Factory orders, December (+1.1% expected, -0.7% prior)

10 a.m. ET: Durable goods orders, December final (+2.4% expected, +2.4% prior)

10 a.m. ET: Non-defense capital goods shipments excluding aircraft, December final (-0.4% prior)

Earnings

Pre-market

6:30 a.m. ET: Clorox (CLX) is expected to report adjusted earnings of $1.32 per share on $1.43 billion in revenue

Post-market