Only 19% of Tesla analysts say buy the stock while investors remain ‘insatiable’


There is an old Wall Street saying that investing isn’t about being right or wrong, it’s about making money. No one understands that better than an investor in Tesla Inc.’s stock.

The financial fundamentals and the historical valuations of earnings suggest the market is wrong about the electric vehicle (EV) maker’s stock price, according to the overwhelming majority of Tesla analysts. But the stock keeps rising and Tesla investors keep making money.

No one is making more money than Elon Musk, Tesla’s chief executive officer, largest shareholder and arguably its most important cheerleader, who just became the third-richest person in the world, according to the Bloomberg Billionaires Index.

RBC Capital Markets analyst Joseph Spak, who has been bearish on Tesla since Jan. 23 2019, when the stock closed at $57.52, put it this way in a note to clients:


“We recognize we underestimated a critical valuation point: seemingly insatiable investor demand for alternative/clean vehicles.”


— RBC’s Joseph Spak

Spak raised his price target to $290 from $170, but his target was still 42% below Monday’s closing price.

See related: His short position just got ‘obliterated,’ but this Tesla bear isn’t giving up.

The stock
TSLA,
-4.67%

soared 13% on Monday, and rocketed 74% in August, the best monthly performance in more than seven years, after a 5-for-1 stock split took effect. On Tuesday, the stock pulled back 4.7% to close at $475.05, after Tesla took advantage of the recent rally to announce a $5 billion share offering.

Also read: Tesla takes advantage of stock’s best month in 7 years with $5 billion offering.

There are some fundamental reasons for investors being right to buy, as Tesla has been profitable for four straight quarters, while Wall Street was wrong to expect losses in three of the past four quarters. And despite concerns about the negative impacts of the COVID-19 pandemic, Tesla delivered way more EVs than expected during the second quarter.

While the 5-for-1 stock split Tesla announced on Aug. 11 didn’t improve the company’s fundamentals in any way, investors were right to buy or hold on to their shares, for now, as the price has charged up more than 80% since the announcement through Monday.

Read more: Tesla stock rally accelerates further into record territory after split takes effect.

Despite such strong investor conviction, 81% of analysts don’t recommend buying.

Of the 36 analysts surveyed by FactSet, only seven, or 19%, have the equivalent of buy ratings on Tesla’s stock. And only one of those analysts, Jefferies’s Philippe Houchois, had a price target — $500 — that was above Monday’s closing price.

Meanwhile, half the analysts had the equivalent of hold ratings and 11 analysts, or 31%, had the equivalent of sell ratings. The average price target of all the analysts was $261.85, according to FactSet, which implied a 47% drop from Monday’s closing price.


FactSet

Most of what analysts have been wrong about Tesla has taken place over roughly the past five months. At the end of March, when the COVID-19 crisis was full blown, there were the same number of bearish analysts as there are now and the average stock price target was $101.86, just 2.8% below the March 31 closing price of $104.80.

With the stock’s gain since then, Tesla’s market capitalization increased to $464.3 billion as of Monday’s close, which was the seventh highest among U.S. companies.

RBC’s Spak suggested that what may also keep supporting the stock is that given the sheer market valuation of Tesla, many portfolio managers have to add to positions “just to keep pace.” He also believes investors have been willing to show more patience and look further into the future to value the stock.

“We still view Tesla as fundamentally overvalued and having to grow into its valuation,” Spak wrote.

Spak recognizes that Tesla is clearly ahead of its competition, has relatively inexpensive access to capital, the ability to attract talent, an “incredible” brand, and understands that “narrative, momentum and other factors” can impact the stock price. But he still believes that ultimately, a company’s value is related to fundamental factors.

Basically, he’s suggesting that one of the biggest risk factors to Tesla’s stock isn’t good or bad fundamental news, but how investors value that news.

Here’s how Tesla’s earnings are currently being valued by investors, through a common metric known as the price-to-earnings (P/E) ratio, and how that compares to the companies that had larger market caps at Monday’s closing prices:

The next major potential news catalyst is Tesla’s “battery day” scheduled for Sept. 22, of which Wedbush analyst Dan Ives said recently he’s expecting a number of potential “game changing” developments. One of those developments is the “million mile” battery, which in theory will support an EV for 1 million miles, which could put Tesla miles ahead of its traditional gasoline-powered automotive competitors.

That said, Ives is one of the analysts that doesn’t recommend buying — he’s at hold — while his price target of $380 suggests the stock could fall 24%.

Year to date, Tesla’s stock has rocketed nearly fivefold (up 468%). In comparison with other EV makers, shares of China-based Nio Inc.
NIO,
+5.72%

ran up 401% this year, Workhorse Group Inc.
WKHS,
+11.26%

soared 563% and Nikola Corp.
NKLA,
+0.46%

climbed 297%. The S&P 500 index
SPX,
+0.75%

has gained 9.2% year to date.

Tesla sees a lot of potential fundamental risks other than valuation

For those looking for actual fundamental risks, the following are just some of those included in the more than 20 pages of “risk factors” Tesla lists in its latest quarterly report filed on July 28. So far, those risks haven’t mattered to Tesla investors.

“We are highly dependent on the services of Elon Musk, our Chief Executive Officer.”

“We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which is difficult to predict, which may significantly harm our business, prospects, financial condition and operating results.”

“We have experienced in the past, and may experience in the future, delays or other complications in the design, manufacture, launch, and production ramp of our vehicles, energy products, and product features, or may not realize our manufacturing cost targets, which could harm our brand, business, prospects, financial condition and operating results.”

“Our future growth and success is dependent upon consumers’ willingness to adopt electric vehicles and specifically our vehicles. We operate in the automotive industry, which is generally susceptible to cyclicality and volatility.”

“Any issues or delays in meeting our projected timelines, costs and production at or funding the ramp of Gigafactory Shanghai, or any difficulties in generating and maintaining local demand for vehicles manufactured there, could adversely impact our business, prospects, operating results and financial condition.”

“If our vehicles or other products that we sell or install fail to perform as expected, our ability to develop, market and sell our products and services could be harmed.”

“The markets in which we operate are highly competitive, and we may not be successful in competing in these industries. We currently face competition from new and established domestic and international competitors and expect to face competition from others in the future, including competition from companies with new technology.”



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Foot Locker got a Q2 boost from government stimulus but Q3 could be a different story, analysts say


Foot Locker Inc. shares jumped 7.8% in Monday trading after the athletic retailer said it expected better-than-expected fiscal second-quarter earnings, but analysts are concerned that once the government stimulus funds dry up, so will demand.

For the second quarter ending August 1, Foot Locker
FL,
+1.78%

expects same-store sales to rise 18%. Earnings per share are expected to be 38 cents to 42 cents, and adjusted EPS is expected to be 66 cents to 70 cents.

The FactSet consensus was for a same-store sales decline of 23.6% and a loss of 40 cents per share.

“As we continued to reopen stores throughout the quarter, we saw a strong customer response to our assortments, which we believe was aided by pent-up demand and the effect of fiscal stimulus,” said Richard Johnson, chief executive of Foot Locker, in a statement.

Foot Locker is scheduled to report fiscal second-quarter earnings on August 21.

See:Versace parent Capri Holdings and Ralph Lauren slump as luxury sales takes a hit during pandemic

“While encouraged to see Foot Locker take advantage of a better near-term environment, the results directionally do not appear surprising given several tailwinds during May-to-June (pent-up demand, fiscal stimulus) which were well documented by others (Hibbett Sports/NPD Group) and seem likely to prove temporary,” wrote Baird analysts led by Jonathan Komp.

Hibbett Sports Inc.
HIBB,
+1.07%

gave a business update in July that shows second-quarter same-store sales on track for a 70% same-store sales increase.

Still, Baird analysts note a recent slowdown in sales at major retailers and brands, including Foot Locker, after a strong June and early July.

“We also are uncertain at this stage of how potential executive actions cutting the weekly federal unemployment payout to $400/week from $600/week previously and providing the option for a temporary payroll tax holiday through year-end (likely less impactful than Cares Act checks) may impact overall spending, with [Foot Locker] in our view highly sensitive to discretionary spending conditions,” Baird wrote.

Baird rates Foot Locker stock neutral with a $29 price target, up from $24.

A Stifel report also shows that athletic spending is likely tied to government stimulus over the coming months, with sports and lifestyle stocks remaining “largely rangebound” after reporting their most recent earnings.

“Underwhelming response from the market, we believe, reflects indications that the consumer recovery has hit a glass ceiling in July and August,” wrote analysts led by Jim Duffy. “Further stimulus is needed to support consumer discretionary fundamentals through an unconventional back-to-school period and holiday.”

See:The back-to-school season will be a ‘dud’ one analysts says, but the NRF is forecasting a record breaker

For the near-term, Stifel analysts favor names including Nike Inc.
NKE,
-0.38%

, Lululemon Athletica Inc.
LULU,
-2.68%

, Crocs Inc.
CROX,
+0.21%

and Yeti Holdings Inc.
YETI,
+0.04%

Raymond James analysts are more upbeat about Foot Locker’s preannouncement.

“Consumer demand is hot right now and not just in the United States due to brand strength in Nike’s basketball/running sneakers (Air Force One and Air Jordans), growing usage athleisure and comfort apparel, pent-up demand from deferred spending in March and April, stimulus checks, and other competitors remaining closed,” wrote Matthew McClintock.

“We believe Foot Locker should be the dominant beneficiary of Nike’s decision to focus on a few global key retail partners and the COVID-19 pandemic likely accelerated Nike and Foot Locker’s partnership.” 

Raymond James rates Foot Locker stock outperform with a $35 price target, up from $30.

Foot Locker stock is down 22% for the year to date while the Consumer Discretionary Select Sector SPDR ETF
XLY,
-0.36%

is up 13.5% and the S&P 500 index
SPX,
-0.98%

has gained 3.7% for the period.



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Fastly stock drops 20% as analysts weigh in on how TikTok may affect the edge-computing platform’s growth


Fastly Inc. shares pulled back from their recent lofty heights Thursday, as analysts weighed in on how the popular video-sharing platform TikTok will affect the edge-computing platform’s growth as more businesses migrate functions to the cloud.

Fastly
FSLY,
-16.24%

shares fell as much as 21% Thursday, and were last down 17% at $90.40, on volume of more than 23 million shares, compared with a 52-week average daily volume of 3.4 million shares.

Late Wednesday, Fastly reported quarterly results and an outlook that topped Wall Street estimates, but revealed that TikTok was the company’s single largest customer, accounting for 12% of revenue. Fastly is a so-called “edge-based” cloud-computing platform that allows developers to get the best possible performance from their applications.

TikTok has come under fire from President Donald Trump, who has suggested banning the service as a national-security risk because of ownership by the Chinese company ByteDance. Trump has also suggested that the U.S. Treasury should get a cut of the purchase price if TikTok is acquired by Microsoft Corp.
MSFT,
+0.90%
.
Also of note, organized TikTok users were credited with helping to wildly inflate attendance expectations of Trump’s ill-attended Tulsa, Oklahoma rally back in June.

Even with Thursday’s drop, Fastly shares have soared 324% from their opening on the New York Stock Exchange in May 2019, with shares skyrocketing 294% in the past three months. In comparison, the tech-heavy Nasdaq Composite Index
COMP,
+0.64%

has gained 25% in the past three months, and the S&P 500 index
SPX,
+0.36%

has risen 17%.

Oppenheimer analyst Timothy Horan downgraded Fastly to perform from outperform and said TikTok was a “major risk” to the elevated stock price.

“A TikTok ban in the U.S. could prevent FSLY from hitting 3Q/FY20 guidance,” Horan said. “TikTok is FSLY’s largest customer and is likely ~15% of revenues in 1H20, with about half that generated in the U.S. We do think a TikTok/ MSFT deal is far from certain, and long-term MSFT could move TikTok delivery on its own edge infrastructure.”

For the third quarter, Fastly forecast an adjusted loss of a penny a share to net income of a penny a share on revenue of $73.5 million to $75.5 million. Analysts, who had previously forecast a loss of 4 cents a share on revenue of $72 million on average, now expect earnings of a penny a share on revenue of $74.8 million.

Read:Facebook’s TikTok rival comes as Chinese company’s future is in limbo

William Blair analyst Jonathan Ho, who has an outperform rating on the stock, said weakness could make a good entry point given its recent performance, even with a possible U.S. ban of TikTok.

“Third-quarter guidance calls for sequentially flat revenue growth, which appears conservative but also reflects some unknowns around TikTok and continued COVID-19-driven demand as global economies reopen,” Ho said. “Fastly remains a stock we would want to own given broader themes around digital transformation and edge compute, and we would take advantage of weakness in the shares.”

Raymond James analyst Robert Majek, who rates the stock as market perform, said TikTok “remains a double-edged sword” for Fastly.

Majek said one “area of perceived softness” in Fastly’s results was slowing growth in its large enterprise customers, which could reflect a COVID-19 related pullback in spending, but noted the addition of a very significant customer.

“We note that the gross adds included one very meaningful customer, Amazon
AMZN,
+0.55%
,
which we believe is using Fastly to deliver ~90% of its image content across the 20 global cities we tested,” Majek said.

Stifel analyst Brad Reback, who has a buy rating and hiked his price target to $98 from $30, noted that while 12% of Fastly’s revenue came from TikTok, half of that came from outside of the U.S., and that digital transformation trends, prompted by COVID-19 adaptation, would drive more organizations to “re-platform their applications” using Fastly.

“The banning of the app in the US would create short-term uncertainty around Fastly’s revenue contribution from ByteDance; however, management believes it has the ability to backfill the majority of this potentially lost traffic,” Reback said.

Of the 11 analysts who cover Fastly, five have buy or overweight ratings, four have hold ratings, and two have sell ratings, and an average target price of $93.25, according to FactSet data.



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Disney’s streaming changes have ‘built a big enough life raft’ to get through pandemic, analysts say as stock spikes


Walt Disney Co.’s shares spiked to gains of 10% and more Wednesday, after analysts focused more on the media titan’s new plans for streaming than financial results that were destroyed by the COVID-19 pandemic.

“Despite long-term worries about cord-cutting, linear advertising, theatrical box office attendance and a possible new normal in consumer travel, Disney has accomplished what their peers have not: They have built a big enough life raft to get the Street’s attention,” MoffetNathanson analyst Michael Nathanson wrote in a note Wednesday morning, while maintaining a neutral rating and raising his price target to $118 from $111. “And that attention helps override poor free cash flow generation, an unusually un-Disney-like stretched balance sheet and a relatively high valuation.”

That life raft was Disney’s
DIS,
+8.93%

attempt to leverage the one positive aspect of a portfolio pounded by the pandemic: Streaming. After detailing a quarterly loss of $5 billion that was transformed into an adjusted profit thanks to an accounting trick involving sports rights, Disney changed the conversation by announcing that it would allow consumers to watch its long-delayed “Mulan” film for $30 on Disney+ and will launch a new international streaming service under its Star brand.

Full earnings results: Disney shakes up streaming approach after losing nearly $5 billion due to pandemic

Analysts were quick to jump on the positive news and use it to wipe away their doubts about Disney’s other businesses.

“While COVID-related dynamics are likely to severely impact many of Disney’s businesses for some time, we are removing the 20% risk discount we have applied to our target price given what we see as increased visibility,” Credit Suisse analysts wrote while upgrading Disney to outperform from neutral and raising their price target to $146 from $116.

”With new CEO Mr. Bob Chapek now indicating an ‘innovative and bold’ further pivot to streaming, we expect Disney shares to be even more aggressively positioned as a streaming growth story (where investors have limited investment vehicles), and eventual COVID recovery play.”

Credit Suisse was one of at least three banks to upgrade Disney shares in the wake of the fiscal third-quarter earnings report, while many boosted their price targets, pushing the average price target on Disney stock from $128.48 to $132.09 Wednesday morning, according to FactSet tracking. Disney shares jumped more than 10% in the morning trading session, touching a high of $130.30 after closing Tuesday at $117.29.

See also: Disney will overhaul Splash Mountain ride amid criticism over connections to racist film — here’s the movie they chose

Much of the consumer chatter from Disney’s earnings involved the cost of “Mulan,” the live-action remake of a Disney animated movie that has been repeatedly delayed and will now be sold as a pay-per-view on Disney+ for $30. In explaining the difficult job of pricing the movie, Bernstein analyst Todd Juenger described it as “both shockingly high, and quite a consumer bargain, depending on one’s view.”

See also: Disney+ was the only plus for Disney as coronavirus slammed other businesses

“Certainly, $30 for a family is significantly less expensive than it would cost to take that family to see this movie in a theater. On the other hand, the marginal cost of watching some other movie on Disney+ or Netflix is ‘zero.’ Or framed differently, a consumer could receive almost a half-year of Hulu SVOD ad-supported, or Disney+ at the annual discounted rate, for the same price as watching Mulan once,” Juenger wrote while maintaining a market perform rating and raising his price target to $116 from $105.

While the “Mulan” move made big waves, analysts pointed out that Disney was adamant that the move was a one-off that will help get some needed revenue — Juenger pointed out that less than 15% of Disney+ subs would need to rent the movie for Disney to get its costs back. The bigger long-term move from the analysts’ perspective was the move for an international Star-branded streaming service similar to Hulu, Disney’s majority-owned North American streaming offering.

“The announcement lacked details, but we believe it is a significant development as it could be a driver in helping Disney achieve 200M global streaming subs, potentially in 2022, following reaching 100M in June,” Rosenblatt Securities analyst Bernie McTernan wrote while maintaining his buy rating and increasing his target to $145 from $135. “This would be a significant milestone in catching up to Netflix
NFLX,
-0.91%
,
as we expect Netflix to cross 200M subscribers during CY’20E.”

See also:Here’s everything coming to Netflix in August 2020 — and what’s leaving

Juenger described it as “a chance to replay the [2019] playbook,” referencing Disney’s launch of Disney+ last year. “Announce a new [direct-to-consumer offering]. Hold an investor day. Announce 5-year sub, ARPU, and profitability target. Collect a ‘Netflix revenue multiple’ against that guidance priced into the stock,” he wrote, before adding a cautionary view of that approach.

“Before we get too carried away, hold on, this is not quite the same. Disney/Fox TV content is not consumer-distinguished in the same way as the Disney+ brands. There will be sizable required investments, we believe the biggest of which will be, once again, foregone licensing. Not to mention accelerated decline of int’l linear channels ($5bn write-off in the quarter).”

Read: Walt Disney World tightens face mask policy after guests took advantage of loophole

Not all analysts were swayed by Disney’s streaming plans. Needham analyst Laura Martin reiterated her hold rating and summarized the questionable numbers Disney released Tuesday.

“Disney provided no forward guidance. COVID-19-related costs in Disney’s FY3Q20 were $3B, net of cost savings, with Parks’ adverse impact alone at $3.5B. … We remain on the sidelines until the structural economic impacts of COVID-19 on Disney are clearer,” she wrote.

Most other analysts, though, were happy to point toward new streaming initiatives as a potential savior for Disney.

“Disney management delivered a focused message of boldly pursuing additional global streaming video opportunities by leveraging STAR and Disney+ assets and a premium VOD window,” wrote Guggenheim analysts, who upgraded the stock to buy from neutral and increased the price target to $140 from $123.

“While it would be easy to maintain a cautious or skeptical approach to these initiatives, we expect the possible further expansion of streaming economics and core underlying investor confidence in Disney intellectual property make further share appreciation the more likely path from here.”

Disney Loses Nearly $5 Billion Amid Pandemic

Here’s why Netflix stock, now below $500, is going to $1,000





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Iran’s stock market surges past key level to record high, as analysts warn of bubble By Reuters


© Reuters. A woman looks at electronic board showing stock prices, following the outbreak of the coronavirus disease (COVID-19), at Tehran Stock Exchange in Tehran

DUBAI (Reuters) – Iran’s main stock index broke through the key 2 million point mark for the first time ever on Sunday, state media reported, amid warnings that the market is overheating.

The Tehran Stock Exchange’s benchmark TEDPIX index gained 46,844 points in early trading, the official IRNA news agency said, up 2.4%.

The index closed at 1,961,649 on Saturday after surging by over 57,325 points, or 3.01%, on the day, according to the Tehran Stock Exchange (TSE) website.

Iran’s clerical rulers have been encouraging ordinary Iranians to invest in local stocks to boost the country’s economy, which has been hard hit by the reimposition of U.S. sanctions over Tehran’s nuclear programme.

Analysts and some lawmakers, however, have warned that the move might raise the risk of a stock market bubble as the rising market is at odds with Iran’s deteriorating economic fundamentals, which are also feeling the impact of the coronavirus outbreak.

Iranian authorities have denied that there is a bubble in the country’s stock market.

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