Slightly before the tweet, the Financial Times reported that Saudi Arabia’s sovereign wealth fund had acquired a US$2bn stake in the company. Just when investors thought that was the big story of the day, the other shoe dropped.
Shareholders could either to sell at 420 or hold shares & go private— Elon Musk (@elonmusk) August 7, 2018
News of the possible privatization sent Tesla shares soaring before being halted on impending news.
Now, with the dust settled, analysts are weighing in on the idea of taking the US$60bn automaker private.
Baird analysts are refuting the US$420 per share price mark, saying that shares may trade above that as shorts cover and investors look for a higher price to go private.
The analysts saw Tesla’s deal with the Saudi fund as a good sign.
READ: Tesla CEO Elon Musk takes Wall Street on a wild ride, considers taking electric automaker private
“We believe TSLA’s reported decision to not issue shares for the Saudi wealth fund is positive, as It highlights the company’s belief it can fund growth through internally generated capital,” wrote analyst Ben Kallo in a research note.
The analyst reiterated an Outperform rating with a price target of US$411.
While Baird analysts see the share price rising higher, JP Morgan analysts are disputing the shares’ current valuation.
Analyst Ryan Brinkman raised his price target to US$308 from US$195 on the possibility of privatization, but he maintains that Tesla shares are worth no more than US$195 per share based on fundamentals, as per a note summarized by TheFly.com.
While he’s unsure if the company will go private, he stated the tweets were “nevertheless declarative statements from the CEO of a public company which we feel should be considered seriously.”
The analyst kept an Underweight rating on the shares.
UBS analysts think the privatization consideration may just be all smoke and mirrors, a “look over here” maneuver from Musk.
Analyst Colin Langan thinks the proposition is a way for the CEO to change the conversation around the company, as per a note on TheFly.com. Similar to JP Morgan analysts, Langan doesn’t think the fundamentals have changed.
The analyst reiterated his Sell rating and $195 price target.
In a blog post following the tweet, Musk pointed to the “enormous pressure” put on the company by the quarterly earnings cycle, causing the automaker to make decisions right for the quarter but not necessarily right for the long-term.
Morgan Stanley analysts say that while they are understanding of that struggle, they wonder if the capital markets will be able to support a leveraged buyout and if Tesla can support greater financial leverage.
While being out of the limelight may be a better option in some respects, the analysts note that the automaker has relied on the public market to fund its plans since 2010.
“Taking the company private would assume one of 2 factors changing: (1) that the company is on the verge of generating self-sustaining cash flows or (2) that the company can tap into a range of strategic sources of capital not previously at its disposal,” wrote analysts.
The analysts view the benefits of taking the company private are outweighed by the risks of added financial leverage.
Morgan Stanley reiterated an Equal Weight rating with a price target of US$291.
RBC analysts also sympathized with Musk’s sentiment on how quarterly metrics can shift focus away from long-term goals.
However, the analysts were concerned about the automaker’s ability to raise capital as a private company and whether current shareholders would stay on board. Holding onto investors may be dependent on who provides the outside funding.
“In our view, sovereign funds (broadly), cash rich tech companies, Chinese sources and large VCs could all be potential candidates to provide funding,” wrote analysts.
RBC reiterated a Sector Perform rating with a price target of US$315.
Shares of Tesla were down around 1.5% to US$374 in Wednesday afternoon trading.
--Updated to add analyst commentary and current share price