CEO Elon Musk recently slammed the media for covering poorly-performing analysts who trash talk Tesla (see Goldman Sachs’ David Tamberrino as an example). TipRanks is a service that uses natural language programming algorithms to rank analysts based on two factors; their success rate and average return per rating. TipRanks shows that Musk is right to be skeptical of Tamberrino’s recent Tesla Sell rating. This is an analyst with a particularly low success rate with his stock ratings. Here we can see his performance on a one-year basis:
But while Musk can easily deride Tamberrino’s take on Tesla, it’s more challenging to go against analysts with a proven track record of success. Here we decided to see what happens if we focus on only the Street’s top-performing analysts. Is their take on the auto giant any more bullish? Using TipRanks, we can exclude the analysts who underperform and examine the ratings of only the top analysts with a four-to-five-star rating. Let’s take a closer look at what two analysts on the opposite ends of the Tesla spectrum have to say:
Tesla Bull- Romit Shah
Five-star Nomura analyst Romit Shah (Profile & Recommendations) falls firmly in the bull camp. He has just reiterated his Buy rating on Tesla with a price target of $450. From the current share price ($318) this indicates significant upside potential of over 41%. This is now the 7th Buy rating Shah has issued on Tesla this year. And interestingly, we can see that these ratings that have so far netted him an impressive 88% success rating and 3.3% average return.
While Tesla hit its targeted production rate of 5,000 Model 3’s/week by the end of June, Shah believes these levels will only become sustainable during the third quarter. But he nonetheless believes that achieving this crucial milestone is a big step towards reestablishing credibility with investors: “We see continued, meaningful progress on Model 3 production alongside our expectation for improved gross margins,” Shah wrote in a note. “This should offer Tesla a chance to achieve its financial targets in 2H18 (such as cash flow positivity and GAAP profitability).” The analyst added that reservation numbers appear stable “as data suggests that incoming deposits have at least offset a recent acceleration in deposit refund requests in recent months.”
New Street’s Pierre Ferragu (Profile & Recommendations) is even more bullish than Shah. He sees Tesla spiking 66% to $530 (the Street’s highest TSLA price target). “We find Tesla will almost reach positive free cash flow by year end, despite missing unreasonable early production volume expectations,” Ferragu wrote. This top analyst initiated coverage on Tesla in May. So far this one rating has rewarded him with an 100% TSLA success rate and 11.9% return.
Tesla Bear- Ryan Brinkman
Turning to the bear camp we find JP Morgan’s Ryan Brinkman (Profile & Recommendations). He has just published his fifth Sell rating on TSLA this year, along with the stock’s lowest price target of $180 citing ongoing execution risk. From current levels that indicates the stock will plunge 43%.
Brinkman believes that Tesla only managed to achieve Model 3 production targets by unsustainable “burst production” achieved at higher costs. As a result, he widened his second-quarter loss-per-share estimate to $2.80 from $2.45. However, what’s worth noting is that so far this consistently bearish take on Tesla has proved misguided in terms of investment return. TipRanks data shows that Brinkman’s ratings on the stock have netted him a 35% success rate and a very poor average return per rating of -18.6% in the last year. In other words, he has been wrong more often than he was right and would have lost money on his Tesla investment. Clearly even the top-performing analysts can underperform on a specific stock.
Who is right?
If we take a step back we can see that overall, top analysts have a ‘Hold’ consensus rating on Tesla. This is based only on the last three months and breaks down into 5 buy; 7 hold and 4 sell ratings. Meanwhile the average analyst price target of $306 suggests marginal downside from the current share price. Our conclusion: when it comes to Tesla even the Street’s best analysts can’t make up their mind. However, as the track record of the two analysts covered above reveals, so far the bullish take on Tesla stock has certainly proved the most fruitful.
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