Categories Analysis, Earnings, Technology

Earnings preview: Tesla is gearing up for another positive quarter

After a tumultuous year marked by controversies, Tesla (TSLA) seems to be gearing up to expedite the turnaround in the coming months. The majority of analysts predict that the company will record positive earnings throughout this year, easing concerns over its high debt levels and stressed cash flow.

Though market watchers vary in their opinion about the bottom-line performance, the electric car maker is expected to report earnings of $2.26 per share when it reports the fourth-quarter results Wednesday after the closing bell. Meanwhile, the company’s own estimate is far below the consensus view, with the management forecasting a sequential decline in earnings.

While it is almost certain that Tesla will not repeat last quarter’s outstanding show this time, Wall Street is encouraged by the impressive delivery numbers, thanks to the aggressive efforts by CEO Elon Musk to ramp up the production of Model 3. In the third quarter, Tesla turned profitable, posting earnings of $1.75 per share on revenues of $6.82 billion. The stock rallied after the market responded positively to the stronger than expected results.

The market is encouraged by the impressive delivery numbers, thanks to CEO Elon Musk’s efforts to ramp up the production of Model 3

It seems there is too much optimism in the market that RBC Capital Markets last week said Tesla is overvalued and downgraded the stock to underperform. However, the analyst has no doubt about the long-term prospects of the company. The downgrade came a week after Tesla announced its decision to lay off around 3,000 employees to reduce cost.

The ongoing expansion to Europe and Asia, mainly the under-construction Gigafactory in China, has been a major morale booster for investors. Recently, Musk reiterated the management’s resolve to reduce debt considerably, using cash, and not to refinance the loans.

Related: Tesla Q3 2018 Earnings Conference Call Transcript

After reporting strong production and delivery growth for the December quarter, led by a 13% rise in Model 3 shipments, Tesla reduced the prices of its leading models in the US to reflect the tax credit. It is estimated that the flagship Model 3 will be rolled out in the overseas markets with a competitive price tag, considering the headwinds including those related to the US-China trade war.

Despite experiencing high volatility, Tesla shares bounced back last month and traded close to their recent peak. After making a positive start to 2019, the stock dropped sharply two weeks ago when the company announced job cuts and slashed its outlook. The stock has lost about 14% over the past twelve months.

 

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