Goldman Sachs $170 price target report - summary and analysis 2/27/14
Here’s my summary/analysis on the Goldman Sachs report ($170 PT) released this morning (for BofA ML’s report summary,
see here)
Length: 3 pages (plus 4 pages of disclosures)
Summary
1. Goldman Sachs ups their price target from $118 to $170.
First, their price target is a 6-month price target and the main reason for the price target increase is that they’ve increased the multiple they give from 20x to 30x (2018 earnings). The reason they’ve increased the multiple is as follow:
“(a) the increased liquidity which improves Tesla’s risk profile allowing it to make the necessary component investments to support its growth outlook, and (b) greater confidence in the company’s execution based on recent operating results which lend credibility to TSLA’s longer-term EBIT margin target of mid to low teens. We note we have not made changes to volume assumptions at this time.”
2. Goldman Sachs approach to TSLA valuation and their $170 PT.
GS has three 2018 scenarios and then they take the average of those three scenarios to come up with their 6-month price target.
ASPs for all three scenarios are $98.7k for Model S/X and $50.7k for Gen3.
Scenario #1: 170k cars sold in 2018 (80k Model S/X, 90k Gen3)
- $12.9b revenue, 14% operating margin, EBIT $1.8b, net income $1.3b, implied stock price $273 but discounted at 20% =
$149 share price.
Scenario #2: 185k cars sold in 2018 (87k Model S/X, 97k Gen3)
- $13.8b revenue, 14.7% operating margin, EBIT $2.0b, net income $1.49b, implied stock price $311 but discounted at 20% =
$169 share price.
Scenario #3: 200k cars sold in 2018 (94k Model S/X, 105 Gen3)
- $14.9b revenue, 15.5% operating margin, EBIT $2.3b, net income $1.7b, implied stock price $355 but discounted 20% =
$193 share price.
So GS takes the average of their three scenarios ($149, $169, $193) and comes up with their
$170 6-month price target.
3. Goldman Sachs on TSLA’s secondary
They don’t seem to have much of an opinion on the secondary other than that it dilutes eps estimates in the short-term (over the next 3 years) but not so much by 2018 (by 4%), which is the year they base their estimates on. They do mention that the secondary improves liquidity and thus is one of the factors in them raising their multiple from 20x to 30x 2018 earnings.
4. Goldman Sachs on Gigafactory.
No mention about the Gigafactory. Strange because why would they release this report the day after Gigafactory details are announced and not mention it at all in the report. Are these guys really following TSLA actively?
DaveT’s take:
1. The reason for Goldman Sachs relatively low valuation (compared to MS and others) is because they have fairly low 2018 numbers (170k-200k cars sold) and they don’t seem to be looking past 2018 to the mass market disruptive potential of Tesla. In other words, while they’ve become increasingly more confident in Tesla’s ability to execute, they still aren’t convinced that TSLA is going to become much more than a niche auto maker.
2. I’m also quite surprised GS’s report isn’t more bearish considering their past price targets. In fact, they’ve raised their multiple from 20x to 30x (2018 earnings) for their price target increase and this shows that even the analyst team at GS is coming around and having to acknowledge TSLA’s impressive execution and growth. They still seem hesitant regarding Tesla’s potential, demonstrated by them saying, “The primary risk is the sustainability of demand longer term.”
3. While Goldman Sachs’ report is very short (only 3 pages) and lacks depth of analysis, I think it’s a much better report than BofA ML since with BofA ML they make certain claims (ie., casting doubt on demand for product) yet they don’t substantiate those claims with well-fought-out arguments. However, at least with Goldman Sachs they’re not making really many claims. They’re simply presenting some numbers and saying while they’ve become more bullish, they’re still cautious. I would have liked for them to be more detailed and comprehensive, but oh well. In the end, this report doesn’t help shorts much at all as it falls short compared to the bullish reports/arguments published recently by other analysts.
4. On a last note, with GS becoming a bit more bullish on TSLA (I wouldn’t consider them a bull, since their PT is $85 lower than current price) I think that the overall general sentiment on the Street toward TSLA is becoming rather positive. The main argument seems to be valuation and attempting to quantify the true potential for Tesla’s products.
