Morgan Stanley Trims PT on Tesla (TSLA) to $242; Sees $50 Bear Case and $408 Bull Case

November 23, 2016 12:45 PM EST
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Price: $186.77 +2.92%

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    16 Buy, 14 Hold, 9 Sell

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In a note earlier, Morgan Stanley analyst Adam Jonas trimmed his price target on Equalweight-rated Tesla Motors (NASDAQ: TSLA) to $242.00 (from $245.00). Following stronger than expected 3Q results and the closing of the SCTY transaction, the firm restructured earnings forecasts with offsetting adjustments to the target.

2016e EPS (US GAAP, excluding stock comp) improves to a loss of $2.30 from their previous estimate of a $4.96 loss. For 2017, the firm's EPS estimate moves to a loss of $2.50 vs. a loss of $1.65 previously on higher R&D and SG&A expense.

Free cash flow burn is forecasted to be $1.1bn for 2016 (including $700mm consumption in 4Q16), and a similar level of cash consumption in 2017. Burn to continue in 2018, taking gross cash to just under $1bn in 2018 on their forecasts.

The firm's continue to forecast a Model 3 launch at the very end of 2018 (more than 1 year later than company target) with 60k units in 2019 and 130k units in 2020.

Jonas notes valuation outcomes for TSLA equity remain highly volatile, ranging from the firm's $50 bear case to a $408 bull case.

The bear case: Tesla is limited to niche premium brand status. A sustainable, but small company with OP margins normalizing at <10%. Model S and X combined volume of no more than 70k units by 2020. Gen 3 volume reaching 60k units by 2020 and 175k by 2030. Valuation excludes any further benefits from the sale of ZEV credits. No value ascribed to Tesla Energy or Tesla Mobility. Stock price at this level bounded by strategic valuation from firms potentially interested in Tesla's brand value, technology, intellectual property and market position. Value no more than 1x forward year sales

The bull case: Unchanged operating assumptions for the core auto business but with the market applying a lower risk premium due to tangible achievement of Gigafactory and Model 3 milestones. An 11% WACC and 11x exit EBITDA multiple on our DCF supports a $248/share valuation for core Tesla Auto. Added to this are our base case assumptions for Tesla Mobility but at a 12% WACC, implying $128 per share. . We value Tesla Mobility using a 15-year DCF assuming 30% tax rate and terminal cash flow perpetual growth rate of 3% (implying an exit NOPAT multiple of 8.6x). We also add $16 for Tesla Energy which assumes that 15% of Gigafactory output is sold to the power sector at a 15% margin. SCTY value of $16/share is equal to the value of shares Tesla issued in relation to the acquisition.

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $191.17 yesterday.



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