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SolarCity Corp (SCTY) Will Crash Tesla Motor Inc’s (TSLA) Party

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Tesla Motors Inc (NASDAQ: TSLA ) is set to release a fairly bright quarterly report Wednesday, but even the best of news will be tempered by its proposed acquisition of SolarCity Corp (NASDAQ: SCTY ). Tesla stock owners and those who have shares in the solar power company will vote on the merger Nov. 17. Given the potentially seismic impact this could have on TSLA stock going forward, it's going to be in forefront of Wall Street's mind when looking at Tesla earnings this week.

Source: Mike Lau via Flickr (Modified)

That said, TSLA is on track to produce its best quarter in years as far as earnings go. Indeed, it should be the first time that Tesla reports profits on adjusted basis since the third quarter of 2014.

On average, analysts expect Tesla earnings to come to 7 cents a share, according to data from Thomson Reuters . That would represent a big swing from last year's loss of 58 cents a share. That would also follow seven straight quarters of losses on an adjusted basis (which is what the Street cares about.)

Tesla Stock: An Actual Profit?

Analysts are also looking for TSLA to claim some stupendous revenue growth. The top-line is projected to increase close to 90% to $2.33 billion. After all, business has been brisk. The company recently closed the best quarter of sales in its history. Earlier this month, TSLA disclosed it delivered 24,500 vehicles in the previous three months. That topped the Street's estimate for 23,000 vehicles by a comfortable margin.

Equally impressive was Tesla's dominance of the market for large luxury sedans. The automaker sold 9,156 of its Model S in the third quarter, a jump of 59% year-over-year, and dominated the No.2 seller, Daimler AG (OTCMKTS: DDAIF ), which saw sales of the Mercedes-Benz S-Class fall 9% to 4,921.

Heck, the Tesla Model S accounted for just under a third of all sales of large luxury sedans in the U.S. in Q3. Sure, it's a puny part of the total car market, but it shows that TSLA is grabbing market share and mind-share when it comes to its high-margin vehicles.

What to Expect From Tesla Earnings

And yet Telsa stock will still be driven by Elon Musk's highly suspect idea to acquire SolarCity. It's just not clear that these two companies are a complementary fit. Some critics argue the sole reason for the deal is to essentially bail out Solar City. (Cough, probably.) With more than a fifth of shares outstanding, Musk is the top holder of SCTY stock.

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Usually such votes are a rubber stamp for what the boards of directors want. That's not necessarily the case this time and that has TSLA stock sitting on the shoulder.

Tesla stock is down about 15% for the year-to-date and appears to have put in a floor at about $200 a share. It has never displayed much momentum this year outside of market-wider recovery and recently carved out the sell signal of a death cross.

Tesla earnings and the upcoming vote on the merger are like countervailing forces working on TSLA stock. The fundamentals are very much headed in the right direction, but investors remain highly suspect about the wisdom of this proposed corporate marriage.

It's going to be pricey to close and possibly cash-intensive to operate. As analysts at Oppenheimer recently wrote in a note to clients :

"We believe a combined entity will face cash needs in four key areas: stationary power capex (primarily solar), auto capex, working capital and operating lease obligations. In total, we expect the combined company needing ~$12.5B for capex through 2018 sourced from a combination of asset-based debt, system refinancing, tax equity and corporate debt."

Bottom Line on TSLA Stock

Given the uncertainty and anxiety surrounding the proposed deal, there's nothing wrong with sitting on the shoulder yourself when it comes to Tesla stock. The fundamentals are looking, but the stock is trading on SolarCity.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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The post SolarCity Corp (SCTY) Will Crash Tesla Motor Inc's (TSLA) Party appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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