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TSLA

Tesla

$303.50

-1.83 (-0.60%)

10:46
08/20/18
08/20
10:46
08/20/18
10:46

JPMorgan cuts Tesla target to remove 'premature' go-private assumptions

Shares of Tesla (TSLA) are under pressure again this morning as JPMorgan analyst Ryan Brinkman lowered his price target on the stock to $195 from $308 as he reverts back to valuing the shares on the basis of fundamentals alone. Meanwhile, Vertical Research analyst Gordon Johnson told investors that he "strongly" believes a Tesla go-private transaction has a "very low probability." BACK TO FUNDAMENTALS-BASED VALUATION: In a research note to investors this morning, JPMorgan's Brinkman lowered his price target for Tesla to $195 from $308 as he is reverting to valuing the stock on the basis of fundamentals alone given that funding for any type of deal appears to not have been secured. While the analyst acknowledged that Tesla does appear to be exploring a going private transaction, he now believes that such a process appears much less developed than he had earlier presumed, suggesting formal incorporation into his valuation analysis seems premature at this time. As such, Brinkman feels it is appropriate to remove the 50% weighting he had briefly assigned to a going private transaction and instead return to his previous fundamentals-based valuation approach. The analyst reiterated an Underweight rating on Tesla shares. FULLY DEBT-FUNDED DEAL 'NEARLY IMPOSSIBLE": After his back-of-the envelope analysis and given his understanding of Tesla's business, Vertical Research's Johnson "strongly" believes that a go-private transaction has a "very low probability" of reaching the "finish line." He feels that a go-private deal for Tesla would require about $49B in funding, or more than two times the amount Elon Musk projected. The analyst sees a fully debt-funded deal as likely "nearly impossible" to garner interest at present. Despite Musk's claims, Johnson pointed out that he believes retail investors will be restricted from participating in any potential Tesla go-private deal, noting that as a result of the JOBS Act, "private vehicles are limited to 2,000 investors, no more than 500 of whom may be unqualified investors." In the analyst's view, for a deal to be realistic, Tesla would need to reduce its debt by roughly half, or $5B, and would need another approximately $5B in equity financing to make it through the next 10-12 month "theoretical" deal process. Given existing shareholders who decide to roll their position into a private equity will not be able to exit shares if they "don't like what they see," the analyst highlighted that institutional participation is predicted on "several, large, credible buyers coming forward soon to give their 'blessing' to the deal." This has not happened yet, he said, adding that with roughly $800M in annual stock-based compensation, the deal would likely need to be upsized by $4B-$5B to cover new cash expenses. Overall, Johnson sees the probability of Tesla being taken private at less than 10%. WHAT'S NOTABLE: Saudi Arabian sovereign wealth fund PIF is in talks to invest in aspiring Tesla rival Lucid Motors, according to Reuters, citing people familiar with the matter. It has been speculated previously that PIF, which has built a stake in the electric carmaker, could be asked to help Musk fund a deal to take the company private. PRICE ACTION: In morning trading, shares of Tesla have come off their lows to be down fractionally at $304.78.

  • 29

    Oct

TSLA Tesla
$303.50

-1.83 (-0.60%)

08/15/18
VERT
08/15/18
NO CHANGE
VERT
Sell
Goldman involvement with Tesla 'doesn't mean anything,' says Vertical Research
Vertical Research analyst Gordon Johnson said Goldman Sachs (GS) being confirmed as a financial advisor to Tesla's (TSLA) proposed go-private offer "does not mean anything" beyond the "superficial optics" of the carmaker being able to "use Goldman's prestigious name to lend credence to the deal." Goldman is "in it for M&A fees" and agreeing to be an advisor is "not based on any inherent understanding of Tesla's value proposition, nor is it based on Goldman's confidence in Tesla's legal situation with respect to its significant issues surrounding disclosures and SEC involvement," according to Johnson, who maintains a Sell rating on Tesla shares.
08/16/18
BERN
08/16/18
NO CHANGE
Target $325
BERN
Tesla price target raised to $325 after 'taking company private' tweet at Bernstein
Bernstein analyst A.M. Sacconaghi, Jr. raised his price target for Tesla to $325 after Elon Musk shocked investors last week when he tweeted that he was considering a take-private transaction for Tesla at $420 per share, and given the fact that it has been over a year since the analyst last adjusted his price target. Sacconaghi sees the odds of a successful take-private transaction at less than 50%, with downside to about $300 and upside to approximately $400.
08/16/18
EVER
08/16/18
NO CHANGE
Target $301
EVER
In Line
After visiting Tesla's Freemont facility, Evercore ISI says Model 3 'on track'
Evercore ISI analyst George Galliers said he is a bit more positive on Tesla following his trip to the company's Freemont facility, stating that Tesla "seems well on the way" to achieving steady production of 5,000 to 6,000 Model 3 units per week and that reaching 7,000 to 8,000 units per week seems "well within reach." Following the trip, he said the Model 3 looks to be "on track" and while he continues to forecast second half Model 3 production of 123,000 units, Galliers now believes his estimate could be 4%-7% too low. He maintains an In Line rating on Tesla shares with a $301 price target.
08/20/18
JPMS
08/20/18
NO CHANGE
Target $195
JPMS
Tesla price target cut to $195 from $308 at JPMorgan
JPMorgan analyst Ryan Brinkman reduced his price target on Underweight-rated Tesla back to $195 from $308, telling investors that he is reverting back to valuing shares on the basis of fundamentals alone. Brinkman says that his interpretation of events leads him to believe that funding was not secured for a going private transaction, nor was there any formal proposal. While Brinkman says that Tesla "does appear to be exploring a going private transaction," he believes that such a process appears "much less developed" than he had earlier presumed and is "more along the lines of high level intention," suggesting formal incorporation into his valuation analysis "seems premature."

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