Tesla's Executive Turnover Doesn't Rattle This Bullish Analyst

Tesla Inc TSLA plunged more than 6 percent Friday on the announced departures of its chief accounting officer and head of human resources. Despite anticipated overhang from the firm’s high rate of executive turnover, one analyst regards the phenomenon positively.

The Analyst 

Baird's Ben Kallo reiterated an Outperform rating on Tesla with a $411 price target.

The Thesis

CAO Dave Morton’s departure “reflects the intensity of TSLA’s work culture and is not indicative of problems with fundamentals or financial reporting," Kallo said in a Monday note. (See the analyst's track record here.) 

Baird maintains high expectations for Tesla’s third quarter given reports of 23,000 unit sales in August; VIN registrations indicating on-track Model 3 production; and a tour of Fremont production lines that fueled an “incrementally positive” outlook, he said. 

“We are labeling TSLA a ‘Fresh Pick’ as we believe underlying fundamentals and a ramp in production should drive shares higher ahead of Q3 deliveries and results,” Kallo said. 

Given strong domestic demand and the implications of Tesla’s production targets, the Street could be underestimating cash flow and earnings before interest, tax, depreciation and amortization, according to Baird. 

“We think [second half] results could exceed estimates, particularly given our belief deliveries of the Performance Model 3 should contribute to higher ASPs,” Kallo said. “Additionally, we believe the continued focus on domestic deliveries is a positive read-through for demand; if TSLA were to shift focus to international deliveries instead of maximizing the federal tax credit in [the second half], we think it could imply demand is soft.”

Price Action

Tesla shares were trading up 3.1 percent at $271.39 at the time of publication Monday morning. 

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Photo courtesy of Tesla.