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Tesla (TSLA) to Post Q4 Earnings: Will the Stock Disappoint?

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Tesla Motors, Inc. (TSLA - Free Report) is set to report fourth-quarter 2016 results after the market closes on Feb 22. In the last quarter, this electric car maker posted a positive earnings surprise of 112.28%.

Let us see how things are shaping up for this announcement.

Tesla Motors, Inc. Price and EPS Surprise


Tesla Motors, Inc. Price and EPS Surprise | Tesla Motors, Inc. Quote

Factors Influencing this Quarter

Tesla delivered 22,200 vehicles in the fourth quarter, missing the 25,000 unit target. The total deliveries in 2016 were 76,230 vehicles, falling short of the projection of 79,000 units. This could affect revenues in the quarter. Tesla claimed the company was unable to meet targets due to short-term production challenges.

Tesla’s costs for research & development and selling, general and administrative expenses is also a concern. The company is investing heavily in increasing production capacity, the development of Model X and Model 3, the Gigafactory construction and expansion of sales, services and Supercharger infrastructure. For 2016, the company expects operating expenses to rise by 30% due to engineering, design, and testing expenses related to Model 3 supplier contracts as well as higher sales and service costs associated with expanding geographically. Moreover, due to accelerated production plans, Tesla now expects capital expenditure for 2016 to be around $1.18 billion.

The company has been outperforming the Zacks categorized Auto Manufacturers-Domestic industry for the past six months, with the company gaining 22.1% while the industry rallied only 14.3% over the same period. However, this gain can be particularly attributable to Tesla’s recent expansion decisions, including the venture into the Middle East.

The company reported losses for full year 2015 and 2014 as well as in first-half 2016. Further, the company reported profits in third-quarter 2016 but it remains to be seen whether this can be sustained in the quarter to be reported. Moreover, the company also faces the risk of potential buyers being deterred due to the low number of charging stations. Although the company is working toward developing a supercharging network, the number of charging stations still remains drastically low, particularly when compared with gasoline stations.

Earnings Whispers

Our proven model does not conclusively show that Tesla is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: Tesla has an Earnings ESP of -55.46%. This is because the Most Accurate estimate stands at a loss of $1.85 per share while the Zacks Consensus Estimate is pegged at a loss of $1.19. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Tesla carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Spartan Motors, Inc. SPAR has an Earnings ESP of +50% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Visteon Corporation VC has an Earnings ESP of +5.93% and a Zacks Rank #2.

Trinseo S.A. TSE has an Earnings ESP of +5.30% and a Zacks Rank #2.

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