Why Is Tesla (TSLA) Up 18.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Tesla (TSLA). Shares have added about 18.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tesla due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Tesla Q3 EarningsTop, Down Y/Y

Tesla reported earnings per share of $1.86 in third-quarter 2019, against the Zacks Consensus Estimate of loss of 15 cents. This outperformance resulted from continued volume growth and cost control, which is an important combination for achieving sustained, industry-leading profitability. The company had recorded earnings of $2.90 per share in the prior-year quarter.

During the reported quarter, net income attributable to common shareholders amounted to $143 million compared with the year-ago net income of $311 million.

Revenues declined to $6.3 billion from the $6.82 billion registered in third-quarter 2018. The revenue figure missed the Zacks Consensus Estimate of $6.52 billion.

During the quarter under review, Tesla reported record delivery of 97,000 vehicles and production of 96,000 units.

Total automotive revenues, including that from automotive sales and leasing, decreased 12% year over year to $5.35 billion in the quarter.

Energy generation and storage revenues increased from $399 million in third-quarter 2018 to $402 million in the reported quarter. Services and other revenues were up significantly year over year to $548 million.

Tesla’s third-quarter 2019 automotive gross margin was 22.8%, shrinking 297 basis points (bps) from third-quarter 2018.

Financial Position

Tesla had cash and cash equivalents of $5.34 billion as of Sep 30, 2019, compared with $2.97 billion, as of Sep 30, 2018.

Net cash provided by operating activities amounted to $756 million in third-quarter 2019 compared with $1.39 billion of net cash used in third-quarter 2018. Capital expenditure declined to $385 million from the year-ago quarter’s $510 million.

Model 3 Update

In third-quarter 2019, Tesla reported record Model 3 delivery of 79,703. During the quarter, the production rate of Model 3 continued to improve. Reducing waiting times and improving service experience are the company’s top priorities. It opened 11 new service centers in the quarter and added 68 Mobile Service vehicles to their fleet.

Outlook

Tesla is making efforts to raise vehicle deliveries, sequentially and annually, with some expected fluctuations from seasonality. The company is highly confident in exceeding 360,000 vehicle deliveries in 2019. Importantly, it expects positive quarterly free cash flow as well as net income, in the upcoming period, with possible temporary exceptions, particularly around the launch and ramp-up of new products.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 102.45% due to these changes.

VGM Scores

At this time, Tesla has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tesla has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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