"We Sympathize With Bears But Their Arguments Won't Matter": Piper Hikes Tesla PT By 65%, Cuts EPS

After last week's eyebrow raising upgrades of SNAP and AMZN, this morning upgrades of story stocks continued when Piper Jaffray analyst Alexander Potter upgraded Tesla to "overweight", raising his price target by 65% to $368, and saying that "we sympathize with bears - but their (arguably rational) arguments probably won't matter."

Potter tells clients that he and his team have driven a Tesla for seven months in preparation for this morning's report in which he is dramatically adjusting his FY 2017 EPS lower (from a gain of $0.42 to a loss of $4.83) and yet he upgrades the stock and raises his PT by 65 percent noting that investors might need to, and we quote, "employ a 'creative' valuation methodology and prepare for a bumpy ride" before following Potters advice.

The amusing stream of consciousness continues:

In many ways, TSLA seems to play by its own rules. The company burns through cash at a rate that better-established companies would likely be crucified for - especially considering TSLA's rickety balance sheet and penchant for raising equity. Tesla's production timelines are unreasonably fast, at least based on "expert" opinions in the automotive industry, and the company spurns various industry norms. For instance Tesla has avoided LiDAR in its self-driving systems (which some claim is dangerous), while pursuing a direct sales model that dealerships fiercely oppose. Yet, because of its superior products, loyal shareholders, and inspiring mission, TSLA remains unscathed.

Regarding valuation he says the following:

Increasing estimates and price target, upgrading to Overweight. After traveling with IR we are more convinced that Model 3 deliveries will, in fact, begin in 2017 (we had originally assumed mid-2018). As a  result, our new forecast implies higher sales, but lower near-term EPS, to reflect launch inefficiencies. We now expect a more aggressive increase in Model 3 shipments through 2021 (hence our higher  estimates), but we assign no credit for new vehicle models or upside in Energy Generation & Storage. Our price target remains based on 15x EV/EBITDA (ex-capex), discounted at 15%, but is rolling forward to 2021 (from 2020) because we now expect volume growth to taper in 2021, making this a more stable/suitable year upon which to base our target.

A summary of his adjustments to 2017 EPS estimates which "reflect inefficiencies" in the Model 3 launch as per Street Insider.

  • Q1 2017 EPS goes from a loss of $0.12 to a loss of $0.78.
  • Q2 2017 EPS goes from a loss of $0.13 to a loss of $0.82.
  • Q3 2017 EPS goes from a gain of $0.15 to a loss $1.60.
  • Q4 2017 EPS goes from a gain of $0.52 to a loss of $1.63
  • FY 2017 EPS goes from a gain of $0.42 to a loss $4.83

And yet, despite the latest series of cuts, the stock is upgraded and the PT is raised by 65 percent.  The analyst also introduced EPS estimates for 2018:

  • Q1 2018 EPS estimate is for a loss of $0.88.
  • Q2 2018 EPS estimate is for a loss of $0.81.
  • Q3 2018 EPS estimate is for a gain of $0.32.
  • Q4 2018 EPS estimate is for a gain of $1.26.
  • FY 2018 EPS estimate is for a loss $0.11.

After closing at $302.54 on Friday, the stock is up another 2.4% in the premarket to fresh all time highs.