Another analyst Combines the Tesla bulls, Updating the stock to buy

Since Wells Fargo’s woes mount, its board may be on the firing line

August 9, 2017

Reservations for the Tesla Inc.. Model 3, in a clip of 1,800 a day without advertisements, highlight “strong need” for the all-electric sedan, helping the Silicon Valley car maker arrive in the margins it needs for the car.

That is according to analyst Bill Selesky at Argus Research, who upgraded his rating on Tesla

TSLA, +2.83%

 

 inventory to buy from hold and set a price target of $444 for the shares, representing 20% upside over Tuesday’s price. Tesla was trading up 3 percent in afternoon trade.

“Our upgrade reflects strong orders for the Model 3,” Selesky wrote in a note. The car’s production ramp-up will boost labor and overhead costs in the near term, but the additional costs will decrease over the course of next year.

See also: The market has not cheered Tesla’s earnings this much in almost two years

“As such, we believe that Tesla is going to be able to attain its 25% gross margin target on the Model 3 late next year, in line with the margins already attained on the Model S and Model X,” Selesky said.

Selesky narrowed Argus’s 2017 reduction estimate on Tesla to $5.36 a share, from $5.48 a share, to reflect second-quarter results. “Our revised estimate assumes stronger gross margins across the rest of 2017, with continued sales growth for all three models,” he said.

Related: Tesla short sellers lose nearly $800 million as inventory rallies after earnings

Analysts on average are neutral on Tesla shares and collectively have a price target of $300, implying 18% drawback, according to FactSet. They also anticipate bigger adjusted losses for Tesla this year of $6.25 a share. The company isn’t expected to post a annual profit until 2019.

Tesla last week posted quarterly results that topped expectations, reporting a narrower-than-expected reduction and more sales than forecast.

Crucially, Chief Executive Elon Musk told analysts on a call following results there must be “zero concern” about the company achieving its production goals for late next year; namely, to be able to produce cars at an annualized rate of 500,000.

On the same call, Musk corrected a statement he’d made to media in the Model 3 unveil, stating that bookings for the Model 3 stood at 455,000, instead of 500,000, due to cancellations.

Read more: Comment: Tesla is a large public company, and Elon Musk must start acting like it

Tesla late last month established the Model 3, its sedan aimed at the masses, and hopes to make them in earnest this fall. The company on Monday said it planned to sell $1.5 billion worth of debt to help fund Model 3 generation.

Tesla shares have gained almost 72 percent so far this month, handily beating the S&P 500 index

SPX, -0.24%

Which gained 11% in precisely the same period.

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