When it comes to Wall Street cheerleaders, Tesla has few closer friends than Morgan Stanley’s Adam Jonas (current price target of $379). To be sure, the relationship cuts both ways, with Jonas relentless enthusiasm ‘for the EV maker granting Morgan Stanley a reserved spot for any future debt, convert and equity underwriting, as well as associated IB fees. Yet, following the recent volatility in Tesla’s business model, in which the “production hell” that is Model 3 has been quietly relegated to the latest and greatest hype involving the company’s truck (funded in turn by deposits for the new Tesla $250,000 flying roadster) as well as stock price, not even Jonas can pretend that it’s smooth sailing ahead.
And so, in his latest forecast released overnight which has the same interval of confidence as a bitcoin price prediction, Jonas previews the stock performance of Tesla over the coming year, writing that he expects “Tesla shares to be extremely volatile in 2018, divided into two stages: (1) The alleviation of production bottlenecks with strong cash inflow, and (2) mounting concerns over the sustainability of the competitive moat.”
His enthusiasm is even more constrained in his thesis:
Our Equal-weight rating on Tesla expresses our view that any number of positive and negative forces influencing the stock are more or less in equilibrium. While our $379 price target offers 20% upside from current levels, we believe such upside is less interesting on a risk-adjusted basis. From a shorter-term trading perspective, we anticipate Tesla’s stock price may reach highs in the range of $400 or more over the next few months before facing some more serious headwinds later in the year that could take the stock significantly below current levels.
While the upside forecast is hardly new for Jonas, the downside is certainly a headscratcher for the TSLA faithful, because if Musk is suddenly left without his biggest Wall Street fan, who else is left to drum up interest in a business model that would send PT Barnum in an orgasm of shivering delight.
And just in case there is some doubt about Jonas’ sincerity, he provides the following five bullets to justify why even he has gotten cold feet:
As a result of the above, Jonas now assumes only 1,000 Model 3 deliveries in 4Q, down from 10,000 deliveries previously. That said, he leaves his 2018 forecast of 120,000 Model 3 deliveries unchanged, and some more details:
We took 2018 GAAP operating profit from ($688) to ($1,001). Our 2018 GAAP EPS (ex stock comp) estimates went from ($3.66) to ($6.17) and our US GAAP EPS estimate went from ($6.58) to ($9.00). From 2018 through 2020, our average GAAP OP forecast moved from positive $280mm to negative $70mm. From 2021 through 2025, our average GAAP OP forecast moved from $4,491 to $4,242…. A 5% cut. The cuts are even smaller in the out-years. Our Tesla Mobility forecasts remain unchanged. We roll forward our DCF start date to December 1st, and our price target remains unchanged at $379
As of this moment, investors appear just as confused about Tesla’s future as its former biggest fanboy, located almost exactly halfway betwen the two stated extremes…
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