Tesla Analyst Lays Out The Case For An Equity Offering

With Tesla Inc TSLA shares up about 17% over the last two trading sessions and up 80% just one month into 2020, one analyst made an interesting call Wednesday.

Equity Capital Raise To Pay Off Debt

Cascend Securities' Chief Investment Strategist Eric Ross said Tesla's "renewed access to equity capital could reduce their debt load significantly." The strategist believes paying off debt via an equity capital raise could be accretive to the company's calendar year 2021 earnings by about $1 per share.

"With $13.5 billion in debt, a $20 billion raise would dilute valuation by roughly 13.5%," Ross suggested. He pointed out the offering would help remove risk from the company's model and also leave Tesla open to future debt financing with a clean balance sheet.

Ross said even if the offering was neutrally accretive, an offering might be beneficial as it would take the debt risk off the table for investors, an argument bears in the stock have made for years.

Ross maintained a Buy rating and $750 price target on shares of Tesla.

Tesla's Huge Run Takes A Breather

Tesla shares saw some profit taking Wednesday, down about 14% to around the $760 level at time of publication. At one point, the stock traded above the $960 level in Tuesday's session.

In addition to the profit taking, a Tesla exec suggested the coronavirus outbreak in China could delay delivery of some China-made Model 3 vehicles. Tesla is also evaluating whether the supply chain for cars built in its California plant will be affected.

Also on Wednesday, Canaccord downgraded shares of Tesla from Buy to Hold.

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