Tesla Earnings Preview: Tesla Stock Could Wobble, But It Won’t Fall Down

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Editor’s note: This column is the latest update in our 10 Best Stocks for 2014 contest. Kyle Woodley’s pick for the contest is Tesla Motors (TSLA).

Tesla Stock Earnings Report Q1 2014

The Tesla Motors (TSLA) Update: 10 Best Stocks for 2014

Tesla Motors (TSLA) reports earnings Wednesday after the bell, and … well, God help you if you have motion sickness.

Because for Tesla stock holders, Wednesday is going to be a stomach-churning day.

What’s not so clear, though, is whether that’s going to be the stomach churn you get while enjoying the hill of a thrill ride, or the one you get after copious drinking and questionable late-night food choices.

So, let’s run down what we might see Wednesday afternoon, and take a look at a couple options trades on Tesla stock if you have an itchy trigger finger.

Tesla Earnings Expectations

First, let’s take a look at Wall Street analyst targets for the TSLA report:

  • Adjusted earnings of 10 cents per share, down roughly 17% from 12 cents per share in the year-ago period.
  • Revenues of $699.10 million, up 24.4% from the year-ago’s $561.7 million.
  • Deliveries of 6,500 Model S units, which is actually a bit more than Tesla’s own estimates of 6,400.

That last point is a particularly prickly one in that it also could include a decline in North American sales. But that might not necessarily be a bad thing, as Tesla is actively working on reducing its bottleneck overseas. ValueWalk’s Vikas Shukla also has noted that investors probably will be listening for progress on Elon Musk’s previous comments about Tesla building out its production line.

Meanwhile, investors should be aware that Tesla earnings estimates have been sliding for months. Ninety days ago, analysts expected Tesla to earn 25 cents per share in the quarter ended in March. That number dipped to 13 cents two months ago and slowly declined to the current dime per share.

The repeatedly lowered bar certainly makes a beat more achievable … but makes it all the likelier that Wall Street won’t stand for a miss.

So … What Else Is Up at Tesla?

Since we last checked in on Tesla stock, meaningful headlines have been unusually few and far between. The Federal Trade Commission showed support for Tesla’s direct sales model, and CEO Elon Musk should have had (or soon will have) talks with Chinese refiner Sinopec about building charging stations. Positive developments, sure, but not exactly blockbuster, narrative-altering headlines.

Tesla trading itself has been more eventful. While Tesla stock itself is roughly flat since early April, it has done so in a roller-coaster fashion. Currently, it’s in the midst of a week-long upswing as TSLA heads toward its earnings report.

It’s that point — combined with the southward-moving earnings bar, as well as Tesla’s still-sky-high valuation during a time where Wall Street has apparently begun to care about overvalued tech — that has me a little pessimistic heading into the Tesla earnings report, and worried that a miss could trigger more selling in Tesla stock.

But there’s also one area of promise that shouldn’t go unnoticed, either: Short interest in TSLA shares has actually been on the way down (from 31.3 million shares in late February to 25.1 million as of mid-April) as Tesla stock unwound a 25% loss from early March through the middle of last month. Granted, 25.1 million is still 28% of the float, so it’s not like the bears are waving a tattered white flag … but it at least could be a sign that not every bear is confident this earnings report will be a disaster.

Tesla Stock Trades Before Earnings

Neither the company nor Wall Street is telegraphing disaster for this report, so it would take a pretty big surprise (a risk that every stock runs) to trigger a massive avalanche for TSLA stock. If you’re in Tesla for the long haul anyway, there’s no reason to bolt.

But, current holder or not, if you want to play TSLA heading into earnings, you could dabble in the options pit.

If you’re cautiously optimistic about Tesla’s chances Wednesday, you could sell the May 17 $225 calls for $8.50. The risk here, naturally, is that TSLA stock pops big on earnings, while you only capture a small portion of it (from Tuesday’s close of 216.61, $8.39, or 3.9%). On the flipside, you do enjoy at least some upside, while also protecting from a bit more than 4% on the downside.

The max profit from this strategy is $16.89 ($8.50 premium + $8.39 in gains) should TSLA stock finish at or above $225 at expiration. Breakeven is $207.67, or a decline of slightly more than 4%. (Max loss is technically unlimited, but you’re still better off with covered calls than you are just holding the stock, as you at least have the premium as padding.) Just note that should TSLA shares pop past that $225 level, your stock will be called away.

Meanwhile, if you’re convinced Tesla is on its way down after earnings, you might instead consider selling the May 17 $215 calls ($12.95) or May 17 $210 calls ($15.25), which will provide less in the way of profit, but more backside protection.

Bottom Line

For as bad as the March-April slump was for Tesla, shares still remain up 44% and sport a triple-digit price-to-earnings ratio, making every potential turning point for the stock feel like you’re carrying a Faberge egg against the Seattle Seahawks’ defense.

Still, while Wednesday very well could be another bumpy day, only precaution seems warranted — not panic.

Check out the earnings call: Tesla Motors, Inc. First Quarter 2014 Financial Results Q&A Conference Call

Recent Tesla Stock News

Kyle Woodley is the Deputy Managing Editor of InvestorPlace.com. As of this writing, he was long TSLA. Follow him on Twitter at @KyleWoodley.


Article printed from InvestorPlace Media, https://investorplace.com/2014/05/tesla-stock-earnings-preview-tsla/.

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