Earnings season preview: Tesla Inc

Another profitable quarter?

Last quarter, and last year at that, was a turbulent time for Tesla, as much due to the behaviour of eccentric CEO Elon Musk as the company’s performance. Perhaps to the relief of Tesla shareholders, Musk has cooled it with the Tweeting, after running into problems with the press and the SEC for his questionable behaviour on the platform. But the business’ performance is seemingly improving, with production targets apparently being met, and assertions from the company’s top brass that Tesla will post another profitable quarter.

What are the forecasts?

According to consensus estimates, Tesla may be about to deliver on some of its grander promises. The view does vary, however according to analysts surveyed by Bloomberg, Tesla moved a big step closer to recording its first full-year profit in 2018. The company’s free-cash flow position ought to have improved too last year, with the view it will move into a cash flow positive position at some stage in 2019.

Some of the key figures markets will watching from Tesla for FY18 are as follows:

• FY revenue growth of $21.3b, up 81.1% YoY
• FY net income of -$187.4m, up from -$1.83b in FY17
• FY EPS growth 87.8%, to -$1.35
• Free cash flow of -$582.1, up from -$3.475b in FY17

Tesla’s results will likely reveal some stubborn blemishes. In a letter written to employees only a few weeks ago, Musk announced that the company would be cutting 7% of its employees. While acknowledging that the firm had made progress in the last half of 2018, turning a 4% profit for Q3, Musk outlined the challenges associated with growing the business with “products that are too expensive for most people.

It will be through this prism that the quarterly results will be viewed, and how investors will frame the guidance they are handed for the year ahead.

What do the analysts think?

The mixture of analysts’ views reflects the divisiveness of Tesla, and its disappointing -12% return in the past 12 months. Out of the 37 surveyed, 13 offer a buy recommendation for Tesla stock, 9 suggest holding it, while a slim majority of 15 believe it’s best to sell. The consensus price target remains relatively high at $323.30 per share, some-way above its last traded price at $297.04. However, the range of the price targets vary significantly, from as low as $72, to as high as $530, with the short interest as a proportion of Tesla’s total equity float coming to almost 21%.

Reflecting analysts’ estimates, price activity in Tesla’s shares is exhibiting signs of a short-term down trend. The 200-day EMA is presently at $320, slightly below the consensus price target, and the 20-day EMA looks on the cusp of crossing of the 200-day EMA, often a very bearish cue.

Though in the bigger picture the price is holding a relatively broad range between $245-$390 per share, momentum and couple of lower-lows reveals a market once again abandoning its bullishness towards the stock. A challenge of support between $245/50 is conceivable in the event of a major earnings miss.