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Analyst Blog

Tesla Motors, Inc.’s (TSLA - Analyst Report) shares fell 3.58% to $201.00 on Oct 6 after Goldman Sachs downgraded the stock to “Neutral” from “Buy”, and reduced the 6-month target price to $185.00 from $240.00.

The lowered rating was based on concerns related to the proposed acquisition of SolarCity Corporation (SCTY - Snapshot Report) . Given that both Tesla and SolarCity have a high cash burn rate, the combined company would have significant capital needs and high leverage, creating significant risks. Moreover, the Model 3 launch is approaching and expanding the scope of the company’s operations at this stage may lead to risks. Particularly, a delay in the launch of Model 3 will weigh significantly on the stock. However, Goldman Sachs conceded that the acquisition would result in some synergies, particularly from lower customer acquisition costs.

The downgrade of the auto sector’s rating to cautious from neutral also played a role in Tesla’s downgrade. The sector’s rating was reduced on concerns that the cyclical auto industry reached a peak last year.

Tesla currently carries a Zacks Rank #3 (Hold). Some better-ranked auto stocks include Cooper-Standard Holdings Inc. (CPS - Snapshot Report) and Motorcar Parts of America, Inc. (MPAA - Snapshot Report) .

Cooper-Standard has witnessed positive estimate revisions in the last 60 days. It also posted positive earnings surprises in the last four quarters, resulting in an average beat of 51.17%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Motorcar Parts has seen its estimates move north in the last 60 days. The stock, with a Zacks Rank #1, has a long-term expected EPS growth rate of 23%, which is better than the industry average of 12.3%.

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