Tesla Inc. shares dropped in premarket on Monday after the electric-car maker put plans to go private permanently on ice, but one analyst said the about-face is good news in the long run.
In premarket trading, shares
fell 4.5% to $308.26, after closing Friday at $322.82. Tossing yet another curveball at investors, Chief Executive Officer Elon Musk announced in a blog late Friday that he had concluded taking Tesla private was too complicated and distracting, and that it was “better off as a public company.”
Shares have been on a roller-coaster ride since Musk floated the idea of privatization in an early August tweet, which reportedly has sparked a Securities and Exchange investigation.
Weighing in on Monday, Baird analyst Ben Kallo, a longtime Tesla bull, said investors should expect Tesla shares to come under pressure in the near term as they question the outcome of staying public. “That said, we expect shares to appreciate over the intermediate term as the focus shifts back to fundamentals, which we believe may be underappreciated,” he said.
He added that they would recommend buying Tesla on any weakness, given they expect a move higher ahead of third-quarter deliveries and results.
Baird analysts have held an outperform rating on Tesla since early 2016, with a current price target of $411. Shortly after Musk floated the idea of a $420-a-share buyout, the analysts predicted shares would go even higher, though they’ve never reached beyond an intraday high of $387.46 on Aug. 7, the day Musk tweeted about his plan.
Kallo said investors should now be able to refocus on fundamentals, with a potential bump coming as Tesla appears to have made “significant progress on the Model 3 production ramp.” He notes the company has averaged nearly 1,500 VIN (vehicle identification number) registrations a day thus far in August, “an imperfect but directional way to track production,” he said. If it meets production targets, investors may be underestimating adjusted earnings, he added.
Among the clouds he said he sees hanging over Tesla are a potential SEC penalty, though he thinks the risks on that may be overblown, and that concerns about potential funding may resurface.
Other analysts remain more skeptical about Tesla. JPMorgan Chase analysts last week said they didn’t believe funding was there and cut their price target to $195 from $308, putting it back where the investment bank’s target stood before Musk’s going-private tweet. They had kept their underweight recommendation throughout the saga.
Musk is taking some heat for his disclosure about not taking the company private coming out close to midnight on Friday evening, as opposed to the timing of his early August go-public teaser tweet, which came in the middle of the trading day.
“Releasing important news after 6 p.m. on a Friday is generally left to penny stocks and promoters, not companies worth $55 billion.” said Michael O’Rourke, chief market strategist at JonesTrading, in a note to clients.
“After so many missteps from the Q1 conference call to the potentially fraudulent and manipulative privatization tweet, one would think the Board would have at least requested this disclosure in a professional manner,” he said, adding that such behavior is often “ruthlessly punished by markets.”
“The traditional thinking is that when the company’s leadership clearly exhibits that the investors’ interests are second to their own, shareholders should not be surprised when the next shoe drops,” said O’Rourke.
Now read: Tesla Model 3 finish is ‘below average,’ analyst says
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