Tesla Motors (TSLA) Could See Near-Term Pressure Amid SolarCity (SCTY) Bid; Long-Term Looks Good - Baird
Baird analyst Ben Kallo reiterated an Outperform rating and $338 price target on Tesla Motors (NASDAQ: TSLA) after the company announced a proposal to acquire SolarCity (NASDAQ: SCTY) in an all-stock transaction.
Kallo said "TSLA believes it can benefit from SCTY’s sales and distribution networks, and we believe the transaction would add cross-selling opportunities for Tesla Energy products and TSLA’s vehicles for SCTY’s large customer base."
He added, "We believe TSLA shares could face pressure in the near term as the news is digested and due to potential arbitrage opportunities, although we continue to believe TSLA offers significant upside potential for long-term investors."
Arbitrage opportunities are likely to impact both stocks trading in the near term, although valuation for both companies remains difficult, he said.
Kallo said TSLA's corporate governance will likely be questioned by shareholders although TSLA has taken steps to minimize potential concerns. "We believe shareholders could be concerned about the transaction given Elon’s ties to both companies," he commented. "That said, Elon Musk and Antonio Gracias abstained from voting on the proposal at the TSLA board meeting given their overlapping directorships at both SCTY and TSLA. Additionally, TSLA will need to complete due diligence prior to receiving final approval from the board."
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Shares of Tesla Motors closed at $219.61 yesterday.