Electric vehicle maker Tesla is releasing results after negotiations close on Wednesday. The report and the subsequent reaction of stock prices should be wild. It’s Tesla, after all.
Here’s what to watch out for, along with recent history.
- Wall Street expects the company to lose 14 cents a share on $ 5.1 billion in revenue. But both figures seem out of date.
- Tesla (ticker: TSLA) delivered more vehicles than expected in the second quarter – as well as more vehicles than the profitable first quarter – but Wall Street was slow to catch up. Profit estimates for the pandemic-hit second quarter, when auto production was halted in the United States, fell below $ 2 a share before recovering rapidly in July, after the release of delivery figures from vehicles. Second quarter sales estimates have fallen below $ 5 billion and are up slightly.
- Wall Street’s “whispered numbers” – which are, in essence, the most recent estimates talked about on the streets, but not reflected in published research – are around 50 to 75 cents in earnings per share. Better than that will likely cause a positive reaction from the stock price.
- No matter what is reported, the magnitude of the reaction, positive or negative, is hard to call. Options markets expect a post-profit movement, up or down, of 15% to 20%. It’s a huge move, which involves a price change of $ 300 and up to $ 60 billion in market value.
- One reason for the big potential swing is the inclusion of the stock in the S&P 500. If Tesla achieves earnings in accordance with generally accepted accounting principles, or GAAP, it will most likely be added to the index.
- The addition of indices creates new demand for stocks from funds tracking the S&P 500 as they rebalance portfolios to accommodate change. This could represent millions of Tesla shares purchased. More buying than selling drives up stock prices, but the extent of the stock indexing advantage is debated.
- After all, Tesla stock has risen nearly 290% year-to-date and 526% year-over-year, crushing comparable returns from the S&P and the Dow Jones Industrial Average over the same period. The gains made Tesla the world’s most valuable automaker by market capitalization.
- Based on Wall Street research reports, indexing is now taken for granted. This means that a GAAP loss appears to be the biggest risk to Tesla stock in the quarterly report.
- Beyond index inclusion, investors should look for news on China. “China is a pillar of Tesla’s growth in [the second half] and 2021, ”Wedbush analyst Dan Ives wrote in a research report on Monday. He believes the demand for electric vehicles is accelerating in China, a bright spot for all electric vehicle manufacturers, including Tesla. Ives values Tesla’s stock the equivalent of Hold and has a price target of $ 1,250 for the stocks.
- Credit from regulators is still a big deal for Tesla bulls and bears. The company is able to sell zero emission vehicle credits to other automakers who must meet California emission standards. The amount of credits sold may affect reported profits from quarter to quarter.
- Overall, analysts are a little more cautious than they were in the earnings report. Tesla bull Joseph Osha, for example, demoted the title to Hold on Tuesday, saying most of the good news was reflected fairly in the share price. Osha was the first analyst to break the $ 1,000 target price barrier in March.
- Additionally, Credit Suisse analyst Dan Levy warned in a July 16 report that a hiccup could lead to a correction in stock prices. Pick rates share the Hold equivalent and have a price target of $ 1,400. CFRA analyst Garrett Nelson downgraded his Hold to Sell rating, while maintaining his price target of $ 1,100 on July 17th. Baird analyst Ben Kallo wrote on July 17 that risk / reward was negatively impacting earnings. He recommended that investors take profits. Kallo is valuing Hold Stock and has a target price of $ 984.
- Most of the recent commentary by analysts has focused on valuation. Most of them, while mindful of value, also point out that recent results and business execution have been better than expected.
Whatever happens to the action on Wednesday night, it’s considered a must-see for everyone in the market.