My Thoughts on Elon Musk, Tesla and Twitter

My Thoughts on Elon Musk, Tesla and Twitter

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Earnings season is officially off and running, with about 7% of S&P 500 companies having released this latest quarterly results in the last week. This week, we’ll hear from several well-known companies, one of which is Tesla (NASDAQ:TSLA).

Tomorrow afternoon Tesla will release its earnings results for its first quarter in fiscal year 2022. Currently, analysts are looking for earnings to surge 143% year-over-year (YOY) to $2.26 per share, up from earnings of 93 cents per share in the same quarter of last year. Revenue is expected to jump 71% YOY to $17.76 billion, up from $10.39 billion the same quarter a year ago. Earnings estimates have been upped about 10% in the past three months, but I should add that they were revised slightly lower in the past week.

It will be interesting to see if Tesla is able to top analysts’ expectations and offer strong future guidance, especially when you consider that the chip shortages and supply chain woes will continue to persist. But the reality is Tesla has held up relatively well compared to its competitors. With the exception of Tesla, U.S. auto manufacturers posted a first-quarter sales decline due largely to semiconductor chip shortages and other supply chain glitches. Specifically, General Motors (NYSE:GM), Ford Motors Company (NYSE:F), Stellantis (NYSE:STLA) and Toyota Motor Corporation (NYSE:TM) reported a first-quarter sales decline of 20.1%, 17.1%, 14% and 4%, respectively.

As for electric vehicle (EV) sales, GM only sold 457 EVs in the first quarter, including 99 of its Hummer EVs. Ford sold 6,734 Mustang Mach-Es in the quarter, which is still trailing Tesla.

I should add that for the first quarter of 2022, Tesla produced 305,407 new vehicles and delivered 310,048 vehicles. This compares to 180,338 new vehicles produced and 184,800 vehicles delivered in the same quarter of last year. However, this number is down slightly from the 305,840 vehicles produced in the fourth quarter of 2021. In addition, the 305,407 vehicles produced were short of analysts’ estimates for about 311,600 vehicles.

Now, Tesla will be negatively impacted by lockdowns in China. Chinese authorities imposed a two-stage “lockdown” on 26 million people in Shanghai in response to COVID-19, and as a result, Tesla had to suspend its vehicle production for five days.

So, I suspect investors will be paying close attention to Tesla’s production numbers, as well as any nuggets of information CEO Elon Musk shares regarding his plans to acquire social media giant Twitter (NYSE:TWTR).

You may recall that Elon Musk shocked Wall Street and the Twitterverse last week when he offered to buy Twitter for nearly $43 billion, or $54.20 per share. This announcement came after Musk purchased a 9.2% stake in Twitter as an activist investor (making him the largest shareholder in the company) in early April, accepting a board seat at the Twitter table, and then rejecting the offer to join the board shortly after.

Twitter’s Poison Pill

Following Musk’s rejection of the board seat and subsequent buyout offer, the Twitter board fired back with a “poison pill” to help block the buyout. Essentially, if an investor (or investors) buys at least 15% of Twitter’s outstanding common stock without the board’s stamp of approval, other shareholders have the option to buy additional Twitter’s outstanding common stock at a lower price. In other words, if Elon Musk acquires Twitter, his stake in the company will be diluted.

Personally, I believe Elon Musk’s buyout offer is in the best interest of Twitter’s shareholders, which I noted in a special Op-Ed MarketWatch article last week:

I strongly advise the Twitter board to accept Musk’s offer. Otherwise class-action lawsuits against Twitter and its board will likely be relentless, which in turn, will cause its stock price to collapse to $20 or less per share. Ever since Jack Dorsey left Twitter, the company has been adrift and unable to properly monetize its increasing sales growth.

I’m not the only one who feels this way; the analyst community isn’t very optimistic about Twitter’s growth either. Currently, analysts are projecting earnings to fall 81.3% (YOY) to 3 cents per share, down from 16 cents per share in the same quarter of last year. Revenue is expected to rise 19.3% (YOY)to $1.23 billion. The company will release its earnings results for its first quarter in fiscal year 2022 on Thursday, April 28, before the market opens , so we’ll have more details then.

Earnings estimates have also been revised lower by 82.4% in the past 90 days. Typically, negative analyst earnings revisions precede future earnings disappointments. At this point, another earnings miss would be par for the course for Twitter, as it fell short of earnings expectations by 5.7% in the fourth quarter and 460% in the third quarter of last year.

Add it all up, and it’s no surprise that Twitter doesn’t rate highly in my Portfolio Grader either. In fact, it holds a D-rating, making it a “Sell.”

As you can see in Twitter’s Report Card above, the company earns a D-rating in five of my eight key metrics: operating margin growth, earnings growth, earnings momentum, earnings surprises and return on equity. I should add that it also earns a D-rating for its Quantitative Grade, which tells me that institutional buying pressure has dried up. This is a huge red flag.

With weak fundamentals and dwindling buying pressure, I wouldn’t touch Twitter stock with a 10-foot pole.

So, what about Tesla heading into its earnings report?

Well, my Portfolio Grader gives it a solid B-rating, making the stock a “Buy.”

It’s important to note that this is a volatile stock. So, a weaker-than-expected earnings report could trigger a selloff in the shares. Let me also say that Elon Musk himself is a wildcard. So, any comment about Twitter that irks investors could also send the shares spiraling. In fact, when Musk first announced his offer to buy Twitter, Tesla shares fell more than 3%.

Despite Tesla’s B-rating in Portfolio Grader, I am not interested in investing in the company right now. The fact of the matter is there are better opportunities out there. I’m talking about fundamentally superior stocks that aren’t overly expensive (like Tesla is) and continue to boast strong sales and earnings growth. Take my Growth Investor stocks, for example. My Growth Investor stocks are characterized by 51.4% average annual sales growth and 370.9% average annual earnings growth.

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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Ford Motor Company (F), Toyota Motor Corp (TM)


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