$TSLA Q2 Earnings Preview

by Enis August 6, 2013 3:16 pm • Commentary

Event:  TSLA reports their fiscal Q2 earnings on August 7th after the close.  The options market is implying about a 12.5% one day move, which is above both the 4 qtr avg of about 11.25% and the 8 qtr avg of about 9.75%.

Sentiment:  Wall Street analysts are somewhat positive on the stock, with 8 Buys, 3 Holds and 3 Sells, but the stock has moved so quickly that the average 12 month price target of around $118 is actually 15% below the current stock price.  The stock has risen from around $55 prior to the last earnings report to around $145 today, an incredible move over the last 3 months.

I’m amazed that short interest is still over 20% of the float.  Here is the chart of total short interest in TSLA:

Short interest in shares for TSLA, Courtesy of Bloomberg
Short interest in shares for TSLA, Courtesy of Bloomberg

So it is nearly half of where it was in the spring, but still substantial given how large the move higher has been.

Holders:  Dan has touched on this before, but it’s worth noting that the top 5 holders of the stock own more than 50% of the outstanding stock (all figures according to Bloomberg):

  • Elon Musk owns 23.76%
  • FMR LLC (Fidelity) owns 14.43%
  • Capital Group owns 6.44%
  • Morgan Stanley owns 4.90%
  • Daimler AG owns 4.09%

Options Open Interest:  Open interest favors puts versus calls by a ratio of 1.5 to 1, again quite a surprise given how much the stock has risen this year (up more than 300%).  In the past month, though, calls have been slightly more active than puts.  The lines close to current spot that have the most open interest are the Aug17th 130 and Aug17th 150 calls, the Aug17th 130 puts, the Sept 130 calls and Sept 130 puts, the Dec 135 calls, and the Jan14 130 and Jan14 140 calls.  The bulk of the put open interest is at much lower strikes, so they’re mostly worthless.

Price Action / Technicals:  TSLA has not breached its 50 day moving average since it first broke out above $40 on April 1st.  The stock has been stair-stepping higher ever since.  I discussed TSLA’s chart structure 2 weeks ago in my Chart of the Day post.  There were some signs of caution, but the stock has made new all-time highs since that post.  The daily chart:

TSLA daily chart, 50 day ma in pink, Courtesy of Bloomberg
TSLA daily chart, 50 day ma in pink, Courtesy of Bloomberg

The mid-July high comes in around $133, which is initial support.  More important support is around the 50 day moving average, which is rising and currently around $117.  Of course, with the stock at all-time highs, there is no resistance on the upside.

Fundamentals:  This is not a company that’s going to be valued by the market on traditional metrics.  Investors are paying up for the stock because they view the technology and the platform as revolutionary.  Whether that turns out to be the case remains to be seen, but that’s the real reason for the stock’s ramp this year.  Not its $1 of expected earnings in 2014.

The real question for TSLA is not on the demand side of the occasion but on the supply side.  Demand is robust in the U.S. (more than 20k units of the Model S on an annualized basis), and growth opportunities in Europe and China are evident.  The real key is whether TSLA can meet its production targets for the Model S by the end of 2013.

That’s obviously a great problem to have, and many investors are probably long-term in nature, confident in Elon Musk to figure it out.  But the shorter-term traders will want to see results this quarter, particularly given the stock’s move year-to-date.

The speed of the ramp up on the production side likely has more urgency today since competition is set to increase in the coming 18 months (BMW news last week was just the start).  But TSLA has built a fantastic car (stellar customer reviews attest to that), so it has a major first mover advantage in the marketplace.

Volatility:   IV30 is near all time highs, which makes sense considering the move higher in the stock between last earnings report and this one:

Screen Shot 2013-08-06 at 1.01.03 PM
from LiveVol Pro

Sept vol stands at about 73, and will likely go below 60 following the event. Vol in TSLA actually used to see the 40’s and even 30’s during quiet periods but that’s changed since it became such a story stock.

Trades:  Stay tuned for our thoughts on potential trade structures that we’ll be posting tomorrow ahead of the event.