Event: Tesla (TSLA) reports Q2 results after the close. The options market is implying about an 8% one day move (or about $21 in either direction), which is very rich to the 4 qtr average of only about 4%.
Price Action / Technicals: TSLA is up 20% on the year, up nearly 50% from its 52 week lows made in late March and down about 9% from its 52 week and all time highs made in September 2014.
The one year chart below shows the recent consolidation the stock has been in between $260 and $280, making what some technicians call a flag, that looks like it wants to pop out of and attempt another run at the prior highs. On the downside, the implied move would bring you back towards the low $240s, a level where the stock could find some support:[caption id="attachment_55908" align="aligncenter" width="600"] TSLA 1yr chart from Bloomberg[/caption]
Taking a slightly longer term view, the stock could be forming a head and shoulders top formation, if the stock were to fail and close below $250:[caption id="attachment_55909" align="aligncenter" width="600"] TSLA 2yr chart from Bloomberg[/caption]
I had some thoughts here on the implied move and on the technicals last night on CNBC’s Fast Money:
Sentiment: Wall Street analyst remain fairly mixed on TSLA shares with 10 Buy ratings, 7 Holds and 5 Sells, with an average 12 month price target of $295, more than 10% above where the stock is currently trading. Short interest is at about 25% of the float, or about 23 million shares, just a tad larger than the 22.5% of the shares outstanding that founder and CEO Elon Musk owns, or about 22% of the shares outstanding.
Expectations: Last night on CNBC’s Fast Money we had an analyst on from UBS who recently slapped a sell rating on the shares and highlighted the following areas to focus on from the release:
UBS sees three drivers for the stock:
- Operating margins
- Full year delivery target
- timing of Model X launch
Estimates and Forecasts from Bloomberg:
- 2Q adj loss/shr est. 59c (loss range 21c-$1.11)
- 2Q rev. est. $1.18b (range $1.07b-$1.26b)
- 2015 adj. net income est. $45.4m (range -$18.4m to +$116m)
- 2015 Ebitda est. $428.6m (range $209m-$554m)
- NOTE: TSLA 2015 delivery est. 55k for Model S and X and on July 2, Tesla Model S Deliveries 11,507 in 2Q, Saw 10k-11k in May
Volatility Snapshot: while the implied move seems very rich to the average over the last year, it is very similar to what was implied prior to the last couple earnings reports. I would say the one big difference this time around is that the spread between implied volatility (the price of options, blue below), and realized volatility (how much the stock is moving, white below) is fairly narrow, with both rising:[caption id="attachment_55911" align="aligncenter" width="600"] from Bloomberg[/caption]
So the implied move appears high, but the stock has been moving at its highest levels of 2015, possibly helping to justify the high implied move in an otherwise low vol broad market.
MY VIEW: Throw valuation discussions out the window, there are no earnings for now, but consensus is calling for the company to swing to sharp profit. They have been growing sales 50% a year as the Model S has ramped, and consensus is calling for the same this year and next as consensus sales for 2016 sits at $9 billion, up from $413 million in 2012.
But any downward revision to deliveries, coupled with some cautious commentary on China, and I suspect this stock is below $240 very quickly.
In line op margins, deliveries and status quo on Model X launch, and NO unexpected news on a capital raise and the stock moves higher and attempts a new high in the coming weeks.
Your guess is as good as mine, but I think it is important to note that the company did pre-release Model S deliveries, so its really about forward guidance and updates on stationary storage and the battery factory being built in Nevada.
We will follow up with some trade ideas based on one’s current positioning or directional inclination. Stay Tuned.