2018-10-23 10:29:18 | Tesla races as short-seller Citron reverses course, goes longCitron Research, best known as a short-seller, has reversed its opinion on Tesla, saying in a new report posted on its website that the "story has become too compelling to ignore." Andrew Left's Citron is now long Tesla "as the Model 3 is a proven hit and many of the [Tesla] warning signs have proven not to be significant." TOO COMPELLING TO IGNORE: In a new research report published on its website, short-seller Citron Research said it has reversed course on Tesla as the "story has become too compelling to ignore." For the first time Citron is long Tesla, noting that the Model 3 is a "proven hit" and many of the Tesla warning signs have proven "not to be significant." Further, the report added that while the media has been focused on CEO Elon Musk's "eccentric, outlandish and at times offensive behavior," it has failed to notice the "legitimate disruption" of the auto industry. Citron believes Tesla is "destroying" the competition, with the Model 3 "completely dominating its class" among mid-size luxury and the Model S being the "largest seller in the large luxury car market." "Tesla appears to be the only company that can actually produce and sell electric cars," the report reads. Moreover, Left pointed out that "demand is new this year and pulling directly from [Tesla's] competitors." "We believe Musk is focused on a Tesla stock price above $360, which would remove significant amounts of convertible debt (strike price $330-$360) and leave the company with a very manageable debt load comprised of $2B of senior notes," the short-seller contended. If Musk can deliver on supply and the demand stays intact plus the additional demand of international expansion, Andrew Left sees "tremendous" upside in the stock. "Given that Tesla still has significant growth opportunities left in compact, crossover, and pickup, we don't see demand slowing. Take the worst case [...] and we see 500k cars with 20% gross margins at a P/E of 20x and the stock is $599," he added. BEAR SAYS STOCK 'COULD REBOUND' ON Q3 RESULTS: Barclays analyst Brian Johnson, who has an Underweight rating on the shares with a $210 price target, told investors that Tesla's third quarter results could lead to a rebound in the stock. Johnson noted that he thinks Tesla can report stronger than expected free cash flow in the third quarter, driven by increased payables. The strong, "albeit temporary," cash flow, along with a non-GAAP profit and likely typical bullish management commentary could drive Tesla shares higher, he contended. Earlier this month, Morgan Stanley analyst Adam Jonas told investors that he forecasts a 20% sequential improvement in Model 3 deliveries and sees them being heavily weighted to top-of-the-line mix. Further, he added that he would not be surprised to see average transaction prices for the Model 3 approach $60,000 per unit or more. Given his view on the Model 3, and his thinking that the company's working capital terms could drive a cash flow surprise, Jonas said he sees conditions supporting Tesla offering "extremely strong" guidance for fourth quarter profit and cash flow. The analyst told investors that he also believes Tesla will use the momentum to potentially tap the equity market and continues to forecast a $2.5B equity capital raise in the fourth quarter. Jonas reiterated an Equal Weight rating and a $291 price target on Tesla shares. PRICE ACTION: In morning trading, shares of Tesla have jumped over 7% to $279.05. | |
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