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Time to Buy & Hold Tesla (TSLA) Stock?

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Shares of Tesla (TSLA - Free Report) popped nearly 3% Friday morning after Jefferies upgraded the electric vehicle giant’s stock. Looking ahead, Tesla appears poised for massive growth as it becomes a more profitable company on the back of Model 3 expansion.

Upgrade

Jefferies analysts upgraded TSLA from a “hold” to a “buy.” The firm also raised its Tesla price target from $360 to $450 a share, citing Tesla’s improving balance sheet and strong growth prospects, especially compared to the rest of the auto industry.

“Tesla should continue to stand out with broader price points, battery security of supply, product edge and a brand that transcends the volume/premium divide,” analysts Philippe Houchois wrote in a note to clients Friday. “In short, in the year ahead we think only Tesla will avoid a volume zero-sum-game or negative margin trade-off in EVs.”

Price Movement

Tesla stock jumped nearly 3% in morning trading Friday to $373.20 per share, which means Jefferies’ new price target still represents over 20% upside to where TSLA stock currently sits.

The chart shows us just how much turbulence TSLA stock has experienced over the last three years. Yet, Tesla shares have soared over 30% in the last three months on the back of a strong Q3 performance, even as the broader market fell spurred by major declines from the likes of Apple (AAPL - Free Report) and Facebook .

 

 

Overview

Tesla’s Q3 revenues surged 128% to reach $6.82 billion, which also marked a 70% jump from Q2’s $4.0 billion. Plus, Tesla swung from a loss of $2.92 per share in the year-ago quarter to report adjusted earnings of $2.90 per share.

Tesla’s growth was driven by the Model 3’s success. Tesla’s less-expensive EV was the best-selling car in the U.S. in terms of revenue in Q3—coming in above Toyota (TM - Free Report) , Honda (HMC - Free Report) , and Ford (F - Free Report) —and the 5th best in terms of volume. Overall, Tesla delivered 56,065 Model 3s at a starting price of $49,000, which lifted its U.S. total to nearly 70,000 vehicles.

Weekly Model 3 production hit 4,300 units and helped CEO Elon Musk make good on his promise to be both cash flow positive and profitable on a net basis in Q3. Tesla had been profitable in just two quarters prior to Q3.

Outlook & Earnings Trends

Tesla is currently working to bring down the cost of the Model 3 to its mass-market goal of $35,000. And despite the strong quarter, many investors are still concerned about the company’s current debt load. But Tesla just recently notified holders of bonds due in March that they will be paid in a 50-50 mix of cash and stock, if they elect to convert the debt, according to Bloomberg.

Tesla’s equity-conversion price is $359.88 per share on the $920 million in convertible bonds due this spring. TSLA stock closed above this price on Thursday for the first time since early August. Plus, the decision to use half equity could further signal Tesla’s confidence that it will remain sustainably profitable.

Looking ahead, Tesla’s Q4 revenues are projected to skyrocket by 113% to hit $7.01 billion, based on our current Zacks Consensus Estimate. Meanwhile, Tesla’s full-year revenues are expected to reach $21.30 billion, which would mark a roughly 81% surge from fiscal 2017. 

At the other end of the income statement, Tesla’s adjusted Q4 earnings are projected to skyrocket 170% to reach $2.13 per share. The EV power is still, however, expected to report a full-year loss in fiscal 2018. On the bright side, Tesla is projected to post adjusted earnings of $5.47 per share in fiscal 2019, which would mark a 537% climb from our fiscal 2018 projection.

We can also see that Tesla’s earnings estimate revisions have all trended in the right direction recently.

 

Bottom Line

Tesla is currently a Zacks Rank #1 (Strong Buy) largely based on its recent earnings estimate revision activity, and rocks an “A” grade for Growth in our Style Scores system. The company also plans to bring the Model 3 to Europe early next year, where it noted the mid-sized premium sedan market is more than twice as large as it is in the U.S.

With all that said, it seems like Tesla stock might be worth considering at the moment. And for those high on TSLA, it might be time to consider holding onto it as the electric vehicle revolution has barely started.

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