Wall Street analysts are gaining more confidence about what is gearing up to be a pivotal earnings report from Tesla (TSLA). The electric vehicle company is set to deliver its financial results for the second quarter on Wednesday after the closing bell.
Aside from the its top and bottom line results, investors are eager to hear updates about the company’s production run rates out of its factories in Shanghai, Berlin, and Austin. Among the bullish notes from analysts comes from Deutsche Bank's Emmanuel Rosner: "We believe the Street's anticipated sequential profit deterioration of >$1.5B more than captures the large headwinds faced in the quarter, from Covid-related shutdowns in China, costs associated with closed-loop productions, and ramps in Texas and Berlin factories.”
Citing Tesla’s "good cost execution and continued pricing strength,” Rosner on Monday added Tesla stock to its "short-term Catalyst Call Buy List.” In essence, for those who don’t currently own Tesla, this could be a buying opportunity. Not only have the shares dropped roughly 50% from their highs in November of around $1240, the decline in Tesla seems more pronounced when compared to other high-growth tech stocks that neither generate the level of cash as Tesla, nor have the same level of buzz.
The stock looks attractive at current levels, now trading around 40 times forward earnings, compared to 175 at its high. The market’s bearishness is due to fears of a recession. However, Tesla has shown with its product-pricing flexibility that it can navigate a recession relatively well. Tesla’s increased focus on its growth strategy, namely production and profit margins, have been a major factor in the company’s recent success and will be the main driver of the stock on Wednesday.
In the three months that ended June, Wall Street expects the Austin, Texas-based company to earn $1.98 per share on revenue of $17.39 billion. This compares to the year-ago quarter when earnings came to $1.45 per share on revenue of $11.96 billion. For the full year, ending in December, earnings are expected to rise 57% year over year $10.64 per share, while full-year revenue of $85.19 billion would rise 58.3% year over year.
As noted, the market will focus on operating metrics, particularly Tesla’s ability to navigate the covid-related lockdowns in Shanghai, China which have raised concerns about production capacity. Operations at Tesla Shanghai Gigafactory have been intermittently suspended since late March, resulting in a production capacity losses. However, few car companies have been able to match Tesla’s execution track record, which includes topping analysts’ profit estimates by close to 30% average over the past four quarters.
Having recently announced its Q2 production and delivery numbers that includes a surge of 750% in Model S/X sales, Tesla is poised to deliver another top and bottom line beat. That’s because the company’s average selling prices will benefit not only from rising prices, but also from a higher mix of sales for high-end model S and model X demand. Demand for the higher-end vehicles, which helps maintain automotive gross margins, remain robust, helping Tesla to surpass Q1 surpassed expectations on both the top and bottom lines.
Q1 adjusted EPS of $3.22 topped estimates by 95 cents, while revenue of $18.76 billion surged 80% year over year, and more than $920 million than the Street expected. Just as impressive, automotive gross margin was 33% of revenue, higher that 26.5% year over year, beating the consensus mark of 29.9%. The company maintained its multi-year deliveries guidance for 50% average annual growth. On Wednesday investors will see if Tesla sticks to that forecast given the supply chain disruptions it has faced.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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