Tesla (TSLA) May Have Bit Off More than It Can Chew with SolarCity - Piper Jaffray
Piper Jaffray analyst Alexander Potter reiterated a Neutral rating and $223 price target on Tesla Motors (NASDAQ: TSLA) after the company announced announced a bid for SolarCity (NASDAQ: SCTY). While they think the deal makes a lot of strategic sense, Tesla may be asking too much of itself.
"By attempting to produce a full suite of consumer products that produce, store, and consume energy, TSLA is demonstrating once again how ambitious its long-term strategy really is," Potter commented. "Big-thinking investors will probably like this approach, as it shows why TSLA's market cap could eventually far exceed "plain vanilla" peers in the automotive industry - none of whom have the guts to expand outside their own industry, in our view. However, with the Model 3, TSLA is already subjecting itself to one of the most ambitious (and probably one of the least achievable) production ramps in automotive history. Integrating SCTY wouldn't make this process any easier. We remain on the sidelines."
The firm is leaving estimates unchanged, but said assuming a midpoint takeout price of $27.50/share (or $2.7B in total), Tesla would need to issue 12.34M shares (at $219) to cover the cost of the buyout. This represents ~8.8% dilution.
The firm still think the odds of negative catalysts outweigh the odds of positive catalysts in the next 6-12 months.
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Shares of Tesla Motors closed at $219.61 yesterday.