Here's what every major analyst had to say about Tesla's profitable earnings: 'This quarter was different'

Tesla just posted a big earnings beat — Here's what six experts say investors should know
Tesla just posted a big earnings beat — Here's what six experts say investors should know

Tesla shares popped in Thursday's premarket, a day after the electric vehicle automaker reported a surprise third-quarter profit.

Tesla shares rose more than 10 percent as analysts put out bullish notes to investors on what CEO Elon Musk called an "incredibly historic quarter" for the company.

Wall Street analysts raised price targets on Tesla, with many sounding more positive on Musk's ambitious company.

"This quarter was different,' Morgan Stanley said. "The quality of cash flow was stronger than expected."

Some analysts still had their doubts about Tesla, however, pointing to this quarter as potentially a short term success.

"We question if this is not as good as it gets from a near-term upside surprise for shares," Goldman Sachs said in a note after the earnings.

Here's a wrap of all the major analysts on Tesla's results:

Morgan Stanley's Adam Jonas - Buy

Tesla reports its strongest quarter in history by virtually every metric ... Historically, Tesla has beat expectations on 1 or 2 line items while missing on profit or cash flow. This quarter was different ... In our opinion, one of the most important debates for Tesla is when they can become self-sufficient on free cash flow, reducing the need to tap the equity market. 4Q guidance was not that specific but implies slightly lower gross margins and positive free cash flow (at least greater than the $230mm of convert debt they aim to pay down). The quality of cash flow was stronger than expected with working capital not benefitting as much as we had anticipated.

Goldman Sachs's David Tamberrino - Sell

Another better than expected quarter from TSLA, with Automotive gross margins well above our and consensus forecasts on the back of improved manufacturing costs, reduced labor hours for the Model 3, and helped by a high variant/trim mix for the product ... That said, we question if this is not as good as it gets from a near-term upside surprise for shares. The company has maintained that it designed and built the Model 3 with a target 25% gross margin and almost achieved that this quarter (albeit with a rich mix). However, with its own exposure to China tariffs on imported components and likely headwinds to mix as lower price point vehicles are offered, automotive gross margins likely compress sequentially into 4Q18 – and could see further mix pressure into 2019 as the US Federal Tax Credit begins to phase out for its vehicles ... We raise our estimates, and our 12-month price target to $225 (from $200).

Bank of America Merrill Lynch's John Murphy - Sell

3Q:18 possibly the best quarter TSLA may see in a while ... Many of these elements, particularly mix, are peaky in nature, and will likely fade in the future, so the burden of proof remains on TSLA to generate core underlying earnings and cash flow absent peak factors. Following 3Q:18, we are adjusting our forward estimates (see side table), and, based on our higher estimates, updating our PO from $200 to $220.

J.P. Morgan's Ryan Brinkman - Sell

We expect a strong positive reaction to Tesla's materially better than expected 3Q results reported Wednesday after the close, with revenue, gross margin, EPS, and — most importantly, in our view — free cash flow all tracking better than was expected. Our estimates rise, on the sooner than expected flipping from loss to profit generation, and from cash burn to cash flow, as we now expect Tesla's first full year of positive earnings to be in 2019 vs. 2020 prior. Accordingly, we are raising our December 2019-end price target to $225 from $195 prior, on account of our higher estimates ... With that said, we remain Underweight, both on valuation and concern the new stronger trajectory to earnings and cash may prove less sustainable than the market is likely to presume, including given several headwinds.

UBS' Colin Langan - Sell

Higher Model 3 pricing (~$2k vs. our est.) was likely the biggest driver of the margin beat. FCF of ~$900m was better than our ~$500m est. due to lower capex, a higher than expected accrued liabilities benefit, and higher earnings ... While TSLA claims it will be profitable and cash flow positive going forward, we do not see that as likely with declining prices. TSLA also claims to have no plans for a capital raise; however our view on a Q4 or 2019 capital raise is unchanged as Tesla will need to invest to expand Fremont roduction, build a China factory, ramp Model Y and expand infrastructure.

Citi's Itay Michaeli - Sell

Large Q3 beat adds credibly to the Model 3 margin story as well as Tesla's ability to financially execute on targets that were viewed as a stretch just a few months ago. We expect a positive stock reaction as Q3 will likely bolster the bull case on Tesla's ability to profitability scale and therefore establish a greater EV lead. There's no question Q3 was impressive nearly all-around, but what the quarter likely won't settle is the prevailing debate around Model 3 volume/ASP sustainability into next year (tax credits, trim mix post launch), or lingering legal/regulatory risks that hover over a still stretched balance sheet, in our view.

RBC's Joseph Spak - Hold

Our view: Strong 3Q18 across the board helped by M3 mix ... TSLA may have crossed the line to become self-funding, which would be another clear positive. Expect positive momentum. Tweak PT to $325 but valuation appears fair. No doubt about it, strong results across the board.

Baird's Ben Kallo - Buy

Reiterate Outperform rating. Q3 results beat our/consensus estimates across the board, highlighted by strong free cash flow ($881M), which should help bolster the balance sheet and mitigate concerns over cash burn. Importantly, TSLA reported a Model 3 gross margin of 20%, which significantly exceeded our expectations. Management indicated it believes TSLA can be sustainably profitable and cash flow positive moving forward, which we think could help flip the narrative. We expect shares to trade higher following the blow-out quarter and remain buyers.

Evercore ISI's George Galliers - Hold

A familiar cry from the back seat, for any parent, and one we hear from Tesla investors. While Q3 was not conclusive, we believe the answer is "Nearly" ... This was an important Q for Tesla, where the company delivered. Tesla's reported 6.1% EBIT margin was notably ahead of Ford's 4.4%. Though Q3 was strong, several items should be considered.

Barclays' Brian Johnson - Sell

Tesla noted that it continues to move ahead in China (a key point bulls were looking for) and will produce some components there in 2019. With stronger than expected cash and operating results, and liquidity concerns off the table, we would expect the short-covering momentum in the stock to continue – and at some point we would expect to return to the question of longer-term valuation and remain Underweight with a $210 price target.

Oppenheimer's Colin Rusch - Buy

All eyes now turn to the 2019 debt maturities, capital needs for its China capacity expansion, and depth of demand for Model 3 ... We expect TSLA to hope shares trade above the March 2019 conversion price and pursue a new fixed income instrument to address capex and the November 2019 converts. TSLA also highlighted its remaining 300k+ Model 3 reservations indicating it expects strong sales as it introduces Model 3 in Europe in early 2019. We remain bullish and raise our PT to $418.

Piper Jaffray's Alexander Potter - Buy

Q3 was a milestone quarter for Overweight-rated TSLA, with margins, earnings, and cash flow easily beating our expectations. There's still a lot of "hair" on this company - and TSLA remains the most volatile stock we've ever covered - but we think bears will struggle to poke holes in today's results. Now that Tesla has achieved high-volume production of Model 3 sedans, the company has begun demonstrating that - contrary to many skeptics' long-held beliefs - additional capital raises are probably not necessary. Thanks to operating leverage, opex control, and tight working capital management, Tesla appears increasingly likely to achieve financial self-sufficiency. Our price target is moving from $389 to $396, and we reiterate our Overweight rating.

Nomura Instinet's Romit Shah - Hold

Tesla flexed its model leverage muscles in 3Q18, exhibiting a dramatic swing from negative to positive on a number of key metrics. These included: Model 3 gross margins, earnings, and most importantly, cash flow. The company reiterated its confidence in continued profitability and FCF positivity in every period going forward ... In other words, 3Q18 may mark the quarter in which Tesla became a sustainably self-funded entity ... [Free cash flow] swung from -$739 million in 2Q18 to $881 million in 3Q18, a net change of over $1.6 billion and above our estimate of $410 million and consensus of $181 million. This was critical; Tesla's cash balance grew for the first time since 3Q17 (a period which included a $2 billion debt issuance), from $2.24 billion in 2Q18 to $2.97 billion in 3Q18.

Canaccord Genuity's Jonathan Dorsheimer - Hold

Model 3 costs were better than expected resulting in GMs of over 20%, above our 15% which accounted for $675M of the operating profit. The remaining $848.6M of the operating income was driven by lower R&D and to a lesser extent SG&A expenses ... The combination of improved Corp Governance and meeting operational milestones allow us to become more optimistic on TSLA shares.

Needham's Rajvindra Gill - Sell

TSLA posted its first quarterly profit and positive free cash flow in over two years fueled by higher-margin Model 3 sales ... we remain concerned that overall margins will decline in the [first half of 2019] due to an unfavorable mix shift of Model 3s, decline in ZEV sales, service margins stay in -35-40% and pricing pressure on Model S/X. Moreover, we remain cautious on how fast and, more importantly, profitably it can produce the $45K, not to mention the $35k version, in order to match the backlog of orders. Given the lead time data, we contend that the majority of the 455k net reservation list are for individuals who reserved for the base model.

Jefferies' Philippe Houchois - Hold

With mix assumed stable from Q3, the improvement appears driven by on-going battery cost progress and a more controlled vehicle assembly process. [Free cash flow] of $881m before FS related flows may have benefited from abnormally low [capital expenditures] but both NWC and ZEVs were very minor contributors compared to some market expectations. Gross cash of $3bn goes a long way to de-stress the balance sheet and Tesla intends to pay down the $230m November convertible.

Guggenheim's Rob Cihra - Buy

Tesla reported a PROFITABLE Q3 even ahead of our estimates and in contrast to consensus that kept looking for losses, as the Model 3 ramp now positively flips its economics from big cash-burn to big volume leverage off the big vertically integrated fixed-cost structure the company has been building. We continue to forecast EPS ramping to >$11 in 2019E and >$18 in 2020E, well above consensus of just >$2 and <$9. Reiterate BUY and $430 price target.

Cowen's Jeff Osborne - Sell

The ~25.5% auto margin, >20% Model 3 margin, and the company's control of Opex and Capex were impressive. Management walked back its 10K/week production target and instead focused on hitting 7K, which could lead to lower production estimates from the Bulls for '19-20. Cash improvements bode well for short term debt repayments, but we remain concerned about competition, LT capex needs & valuation ... Management cited improvements to throughput and reduced labor costs as the major factors and noted the strong mix of feature rich vehicles. We were previously forecasting the company to reach this milestone in 4Q19, and are adjusting our estimates to remain >20% going forward despite the headwind to mix as the company launches the lower priced mid-range Model 3, which starts at $46,000 and potential exhaustion of the backlog of high performance versions priced up to $78,000.

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