Tesla Earnings Estimates Are Rising, but the Stock Is Down. What’s Behind the Paradox.
Tesla stock hasn’t been responding to rising earnings estimates.
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Tesla
‘s fourth-quarter earnings are due out on Jan. 26. As the day approaches, Wall Street analysts are fine-tuning their earnings estimates for the quarter as well as 2022.
The direction of earnings estimates is decidedly up. Rising estimates typically produces a powerful tailwind for any stock, but that hasn’t been the case with Tesla (ticker: TSLA) shares. That’s something bullish investors can look to when thinking about 2022 Tesla stock returns, unless the divergence signals something more ominous.
Tuesday evening, Piper Sandler’s Alexander Potter was the latest analyst to update numbers. “We are boosting our estimates to reflect better-than-expected fourth-quarter deliveries, as well as a higher estimate for deliveries in 2022,” wrote Potter in his report.
Tesla delivered almost 309,000 vehicles in the fourth quarter of 2021. Wall Street estimates were closer to 270,000. More cars means more earnings and Potter now expects Tesla to earn $2.50 a share in the fourth quarter, up from an earlier estimate of $2.24 a share.
He also now models 1.53 million units sold in 2022 for Tesla, up from his earlier estimate for 1.38 million units. Potter’s 2022 earnings-per-share estimate goes to $12.14 from $9.91.
He kept his Buy rating on Tesla stock and his $1,300 price target for shares.
Overall, Wall Street fourth-quarter EPS estimates have gone to an average of about $2.25 from roughly $1.90 over the past couple of months. Estimates for 2022 EPS have risen to about $10 from about $8.67 over the same span.
Earnings estimates for the coming year are up about 16% over the past 10 weeks or so. Tesla stock, however, is down about 7% over the same span. That divergence has left bullish investors wondering what is going on.
The problem doesn’t appear to be Tesla. It’s the market. The Nasdaq Composite Index, home to many richly valued technology stocks, is off about 7% over the same span as Tesla’s recent drop. Meanwhile, the S&P 500 is up about 3%, and the Dow Jones Industrial Average has gained about 5%.
Fears of interest-rate hikes are hurting tech-stock valuations. Rising rates hurt high valuations more than low valuations. That’s just the way the financial math works. Tesla is a highly valued stock. Shares are trading at roughly 85 times Potter’s 2022 EPS estimate. Stocks in the Russell 1000 Growth index trade for an average of about 31 times the 2022 EPS estimate.
What bullish investors hope for is twofold. They hope Tesla beats fourth-quarter and 2022 EPS estimates. They also hope that interest rates settle down so investors can focus again on company fundamentals and not what the Federal Reserve is doing to tame inflation.
Investors are felling a little better about things on Wednesday. Tesla stock is up 1.6% in early trading, while the S&P 500 and Nasdaq Composite are up 0.6% and 0.8%, respectively.
Write to Al Root at [email protected]
