The Street has been busy downgrading Tesla (NASDAQ:TSLA) stock recently with plenty of financial prognosticators claiming that following the shares’ run up (109% year-to-date), they have surged enough for now.
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Some, though, don’t feel the need to take that step, amongst them Baird analyst Ben Kallo, although ahead of the EV leader’s Q2 delivery numbers and subsequent Q2 results, Kallo is aware of the shift in sentiment taking place.
“We consider TSLA a core holding and continue to like it as a Best Pick for the year,” the analyst noted. “With that said, we think sentiment headed into the quarter is negative and stock likely trades down into the quarter which should be low point for gross margins.”
Before the company releases all the quarter’s numbers, investors will get a chance to get an idea of what’s in store, via the release of the delivery numbers. These should be out over this weekend. Kallo sees deliveries hitting 423,100, some distance below FactSet consensus of 445,000. But even if Tesla does meet the Street’s target, he believes attention will quickly turn to the Q2 print.
Kallo says demand “still looks healthy,” and that there is ongoing and increasing awareness of EVs. Additionally, he anticipates the service business should also “continue to grow both on top line and in terms of profitability.”
However, the focal point here will be margins and a likely poor display. “We estimate the quarter will likely post the weakest gross margin of the year which we believe is well known and expected.”
And off the back of that, sentiment could start to shift again as it will act as a “derisking” event with buyers once again stepping in to pick up shares.
According to Kallo, that will happen at the same time several catalysts come into play, including “progress” on 4680 cell production, margins improving, the release of the Cybertruck, Model 3 “refresh,” and more color regarding additional production.
All told, Kallo’s rating stays an Outperform (i.e., Buy) although his $252 price target suggests the stock will remain rangebound for the foreseeable future. (To watch Kallo’s track record, click here)
Turning now to the rest of the Street, where the Tesla bulls and fencesitters now get equal billing. Based on 13 Buys and Holds, each, plus 5 Sells, the analyst consensus rates the stock a Moderate Buy. However, striking a contradictory note, the $220.04 average target implies shares are heading down by 15.5% in the months ahead. (See TSLA stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
