Now Isn't Time to Run from Tesla (TSLA): Pacific Crest

Pacific Crest earlier reiterated an Outperform rating on Tesla Motors (NASDAQ: TSLA) with a price target of $293. Comments follow the company's Q1 earnings release. Analyst Brad Erickson pointed to solid demand and strong gross margins. In his view, long-term investors should continue to own the stock.

"Demand issues were nowhere in sight and strong gross margin should signal potential upside to investors' longer-term views of Tesla's earnings power. Further, we think the yearly delivery outlook does not look overly ambitious, which many still believe is a risk," said Erickson.

"We were especially encouraged by the company hitting its guidance of 26% gross margin, which was 130 basis points ahead of the Street expectation and in line with our estimate even as currency worsened. There will certainly be growing pains, but as the company is able to achieve a steadier production cadence over the longer term and ultimately shift some production to better-cost countries (namely Europe), we think there is gross margin upside into the low- if not mid-30%s for Models S and X, which we think would raise many investors' views of Tesla's longer-term earnings potential," continued the analyst.

Erickson added, "Consistent with our preview, we think demand for Tesla's car remains robust. The company highlighted no abnormal discounting this past quarter to move showroom models. We like the company's ability to continue rolling out new strategic models to further stoke demand. While the battery commentary was fairly mixed (reservation metrics were good but management's speculation around long-term profitability was disappointing), with longer-term gross margin potential underappreciated in front of the X launching this summer and further Gigafactory updates before the end of the year likely to be encouraging, now is not the time to run away from the story, in our view."

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 $230.43 yesterday.

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