What To Make Of Tesla's Brutal Quarter

Tesla Inc TSLA shares were surprisingly resilient Thursday morning after the company reported first-quarter earnings that disappointed Wall Street analysts across the board.

Tesla reported an EPS loss of $2.90, which missed the consensus analyst estimates. First-quarter revenue was $4.54 billion, missing expectations by 12.5 percent. Tesla previously reported 63,000 vehicle deliveries in the quarter, well below consensus estimates of 76,000 deliveries.

Several analysts weighed in on Tesla’s quarter. Here’s a sampling of what they had to say.

Capital Raise Coming

JPMorgan analyst Ryan Brinkman said disappointing first-quarter margins and cash flow increase the likelihood of negative earnings revisions from Wall Street and a capital raise from Tesla.

“We expect a negative reaction after Tesla reported 1Q results that missed our expectations in several respects, including on margin and most importantly on free cash flow, while also introducing 2Q19 guidance that newly calls for a loss (vs. consensus which had expected a profit) despite assuming a large sequential increase in deliveries, implying continued margin softness after recent price cuts,” Brinkman wrote in a note.

Bank of America analyst John Murphy said Tesla’s operational issues are clearly far from over and he is expecting the company to continue to struggle to meet consensus estimates.

“Based on our forecasts, we do not expect TSLA to turn the corner on free cash flow until after 2020, and, as such, forecast at least one sizeable capital raise before then to make ends meet, least of all to fund its ambitious growth plans,” Murphy said.

Morgan Stanley analyst Adam Jonas said Tesla will raise $2.5 billion in capital in the third quarter of 2019.

“We think Tesla is waiting to demonstrate a recovery in demand and cash flow before looking to stabilize its balance sheet,” Jonas wrote.

Unreliable Guidance

Despite the weak quarter, CEO Elon Musk reiterated previous 2019 delivery guidance of between 360,000 and 400,000 vehicles, but Loup Ventures' Gene Munster said investors would be wise not to trust those numbers at this point.

“We are modeling for 341k which, while below the low end of guidance, still represents a healthy 39% delivery growth y/y,” Munster wrote in a blog post.

Wedbush analyst and longtime Tesla bull Daniel Ives finally threw in the towel and downgraded Tesla, noting concerns over the company’s demand outlook.

“To this point, in our 20 years of covering tech stocks on the Street we view this quarter as one of top debacles we have ever seen while Musk & Co. in an episode out of the Twilight Zone act as if demand and profitability will magically return to the Tesla story,” Ives wrote.

Ratings And Price Targets

• JPMorgan has an Underweight rating and $200 target.
• Morgan Stanley has a Hold rating and $240 target.
• Bank of America has an Underperform rating and $225 target.
• Wedbush has a Neutral rating and $275 target.

At time of publication, Tesla's stock traded down 2 percent at $253.28 per share.

Related Links:

Wedbush Calls Tesla's Q1 One Of The 'Top Debacles' In 20 Years Of Covering Tech

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