going private

Tesla Technicals Confirm Deal In The Works?

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We said yesterday that a Tesla stock close above $300 was bullish. We got it.

Thursday we told subscribers we thought we’d get below $300. We got it.

This morning we told subscribers that we’re “very bullish on that strong close. It was reported that Morgan Stanley pulled their coverage of Tesla. That’s bullish for a potential nearer term announcement of funding finally secured.”

We recommended to subscribers to buy shares on the open given the apparent nearer term deal.

Add Morgan Stanley’s going quiet on Tesla to Goldman’s pulling of coverage last week.

The negative flow of funding not-so secured is turning more positive with major investment houses pulling it together.

We’d guess CEO Elon Musk is staring down this huge earnings inflection he’s expecting knowing the stock’s worth way more than $420. He’d love to lever some other assets and keep that upside (he’s tirelessly working for) to himself.

We have a target of well over $1000 based on our 2019 EPS numbers.

As said before, we hope a deal doesn’t go through because we think there’s way more upside than $420. But $420 from here would be a nice move too, no complaints.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated Aug 21, 2018 1:14 PM EDT

Tesla: $280 Big Support

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We told subscribers before Friday’s open on Tesla “the stock can drift below $300 to $280.”  There is major support at $280 as you can see in the chart to the left.

Today’s low hit into the $280s.

We wrote to subscribers last week, “I would be patient before adding aggressively. We need bad news to clear before we can. I’d rather buy higher on good news than buying lower without clarity because it can keep going lower without clarity.”

We went on to say, “We love the earnings inflection story but have to be cognizant of the headwinds. The bears are in charge right now with the news flow. The stock’s been holding up but I think it’s a drift lower until clarity on a few issues.”

We’d love to see the stock close above $300 for confirmation of some support.

Any news would be good news.

Scrap Go-Private?

CEO, Elon Musk does not sound like he’s giving up on going private. Funding has not been lined up though.

If they scrap the go private deal it would probably hit the stock but we’d guess the low would find itself around there. Scrapping the go-private deal would be, we believe, the best for shareholders because we have a $1000+ 12-month target price based on the earnings inflection that’s apparently starting this quarter.

Musk himself said to the New York Times that $420 was code for smoking something. That price is not high, it’s way too low.

That’s why if the private transaction is scrapped, we think ultimately it can boost the stock by removing that unnecessary $420 cap.

And remember, the stock was racing there after earnings. Had “Funding secured” not been tweeted we may have been there already.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated Aug 20, 2018 11:00 EDT AM

Tesla’s Potential Outcomes

Tesla's potential outcomes

Unfortunately Elon Musk’s “funding secured” comment last week was not as secure as previously hoped.

Clean Up

Now the board has selected a special committee which, for one protects Tesla (NASDAQ:TSLA) from any more Musk tweets about going private. The Tesla press release today said, “no Going Private Transaction will be consummated without the approval of the special committee.” That protects the company from future tweets.

It looks like today’s company release poses as clean up to avoid this situation getting any worse as a legal liability.

$420 Too Cheap

Our hope is that there is no deal. $420 is peanuts compared to our price target of nicely over $1000.  The Street’s at $2.89 for 2019 earnings per share. We’re now at over $20.00 per share after going form GAAP to non-GAAP to align with the Street estimates who are all at non-GAAP.

Not As Secured

After seeing Elon Musk’s blog post yesterday it appeared his funding was not as secured as he originally stated. We wrote in chat yesterday morning there was risk to the shares.

Will Other Investors Allow $420

There are now many potential buyers named; a new one each day. But this only springing last week on Board members, a decision process could take time. $420 seems incredibly low especially if it forces out non-accredited investors. We’d guess the board is looking into that so to avoid any further legal risks.

If there are final bidders agreed by Musk and the special committee then you have to wonder if other investors or private equity people looked through the Tesla numbers. Did they notice the jump in gross margins in Q2? Did they run the math what that means for Q3. If they did we’d think they can get EPS numbers closer to our $20.00+ than the Street’s $2.00+ for next year.

Did they do the math? We think they did and who isn’t interested in capturing that differential. We’d guess that’s the driving force in Musk’s desire to go private, not the shorts. We’d guess the 10X EPS upside that’s around the corner is why he’s so antsy to take this company back at a 20% premium. Can that happen? Being a public stock, a public market, we’d guess others come in.

But Can Activists Do Anything?

But can activists really do anything?

$420 is way too cheap but could get done anyway. Musk managed to get Solar City approved that time without a special committee of the board. This time Tesla was more careful to elect such a committee to show more objectivity in this important going private decision.

Musk has proven to be able to sway his board and we’d guess he can sway this special committee.

If funds are finally secured and the board agrees then it comes down to a shareholders vote.

Tesla has a super-majority rule needing 66% of the shareholders approval to pass major changes. Between Musk and those close to him he may hold 25-26%. To pass a vote he’d need another 41%. He can probably do it seeing that he had 85% of outside shareholders approve Solar City.

Those invested with Musk believe in him. Those on his board also believe in him. He can probably manage to pull this off.

There is still room to say that the price is too cheap and other profit minded activist investors can try to come in and swing the vote.  If that were to happy you could get a bidding up of shares as activist investors would need to buy up shares to enhance their voting position.

Takes Time?

As this go private decision process likely can take time we’d guess the stock can be weak. The longer it takes the more investors can lose patience. Expect more short stories about issues with the “Funding secured” comment which can drag the stock.

Conclusion

We hope in the end this earnings story plays out.

I would guess $420 is too low. Hopefully any snap back from a drop would mean some investors see a way to achieve more than that $420.

Looking For Earnings Home Runs: 
Join By Locking In A Lower Rate Before They Go Up Tomorrow

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Updated August 19, 2018, 4:46 PM EDT, spelling

Tesla: Musk’s Ability To Raise Funds Is Suddenly In Question?

Elon Musk had among his most famous tweets on August 7th saying, “Am considering taking Tesla private at $420. Funding secured.”

Now the media, bears, shorts and even some bullish investors, and even the SEC are questioning whether that last statement, “Funding secured” was true.

Wait a minute, wait a minute.  Before this going-private chatter was ever on the table was there ever a question that one of Musk’s unique traits was to snap a finger and raise capital?  Hasn’t that been at the center of getting this loss making, cash burning business to where it is today?

Musk knows how to raise funds, right? That’s one of the perks in investing alongside Musk.

So suddenly everybody questions Musk if he says “Funding secured”? Suddenly he lost that special knack to raise tons of capital? Does that make any sense?

And Now With Profits, “Funding secured” Is In Question?

Even worse to that thought process, Musk had no problem raising oodles of cash while burning tons of it, just on his vision and progress.

But now, oh so sweet earnings and cash flow are a quarter away based on the company’s guide.

Model S&X may have had gross margins jump from Q1 to Q2 1100 basis points. Did anybody notice? You can back into the math based on the data they gave in the earnings reports.

And Model 3 gross margins are expected to jump from +1%-or-so to 15%-25% over the next two quarters. Tesla said operating expenses don’t build that much.

If you do the math you have the company swinging to profit and cash flow in Q3. (Model available for subscribers)

Let’s Think Logically

Before I ask you, put aside all the loud media stories and the volatile stock, watching the tick-by-tick on a fancy CNBC chart to get your heart beating.

Let’s think logically.

Go with me here and answer honestly.

If Musk could raise oodles of cash while burning money, do you think he has the ability to raise cash when they are about to swing to one of the biggest earnings inflections ever in history in Q3? Answer honestly (We saved you room in comments to answer.)

Risk Arbs’ Dream

This should be a risk-arb’s dream putting it together.

The CEO who’s known to raise cash like water said “Funding secured.”

As a risk-arb you also know that this is as heavily shorted and doubted a company that exists. So you know you have a huge spread of disbelief to a CEO who’s proven time and time again the ability to raise cash.

This should be a risk-arb’s dream come true.

You’re A PE Firm, What Valuation Do You Pay?

And you’re a big fund or even a PE firm, what do you want to pay? Would you want to help Musk take Tesla private?

Let’s ponder, what goes through your mind.

We have Tesla, based on the gross margins jumping in Q2 and Q3 going to $18-20.00 per share for 2019. The Street’s at $3.30 up from $2.20. The Street does not believe in the company’s guidance. Or they did not do the trajectory of what that Q3 and Q4 guide means for next year. They should cut and paste some formulas in their spreadsheets to see what 2019 should be. Street’s way too low.

If 2019 jumps that means 2020 should jump as well.  If you have that type of cash to help take Tesla private you probably walked the floor with Musk to see it happening, to beleive.

Let’s say that $18-20 for 2019 goes to $25-30 in 2020. Can you envision $35 in earnings at some point.

Really really, our 2019 of $18 GAAP assumes a $24/share swing in earnings from 2018. Can it swing again another $24 in 2020? It could. That’s what earnings inflections do.

So would you be willing to pay, as a PE firm, $420 for +$19+$24 = $45/share in 2020? Would you be willing to pay under 10X earnings two-three-years out before the Street jams the valuation higher?

Under 10X?

You don’t need to sharpen your pencil to do this math. I think the answer is yes.

I Like Listening To What People Say

There was a small hint on the Q2 earnings call that Musk may have been toying with this private idea in his head. First he apologized to a couple of analysts to get back in their good graces. Now that they are all friends, he can raise capital all over again. “Bonehead, brainless” analyst comments were quickly forgotten.

So when asked, “How do you plan to fund all of this growth without going back to the capital markets to raise funds?”

Musk’s answer, “we will not be raising any equity at any point.”

Sorry but was he asked about equity or raising funds? Funds include debt and equity. His answer? He will not be raising any equity.

He’s done with equity.

Who wants to give away equity when Musk’s brain is pondering a 10X PE on earnings two years out.

Equity, he will “not be raising,” but debt, he may.

That was hinted by his response to the question.

“Funding Secured”

Investors doubt funding is secured as he said on Twitter? How’s Musk’s track record with raising funds? Pretty strong, right?

If you thought that “funding secured” tweet was an attempt at market manipulation, we’d disagree. That tweet had far from the same vigor of his many short teases excited to squeeze the shorts.

That was a tired tweet that we’re looking to get out of media’s bearish spotlight and run a business. That was a tweet I’m tired and I want to just run this company now that it’s about to throw off oodles of cash. That was a tweet saying, why do I need to expose myself to all this beating when I have something so special that’s about to take over autos and throw off a high return. I don’t have to deal with this anymore now that I don’t need the funds.

And so those sleepless tired fingers eked out that tweet so he could get the ball rolling and put an end to the media grilling and start raking in the cash.

Conclusion

I believe “Funding” has been “secured” because I believe what Musk said and I believe he has the track record to back it up. I believe he has the desire to take this company back after bulging-eyes are staring down one of the biggest earnings inflection stories in history.

Blame it on the shorts, but I think he’s thinking with his wallet.

Risk-arbs, I think you have an amazing opportunity.

Good luck Musk and everybody.

You can vote if funding’s secured here.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We’re long Tesla.

Updated Aug 10, 2018 4:13 am

Tesla: Should Have Been Private, Now Should Be Public

When doing the work on Tesla (NASDAQ:TSLA) we always thought the company should be private. Burning through all that cash and constantly needing new funding rounds sounds awfully like a private company, not a public one.

Shouldn’t Have Been Public

The loss making, fund raising model is normal for private companies. Private equity and venture funds that are used to it are of course searching for it.

But public shareholders are used to stead-eddy. Public shareholders are typically served earnings progressions and quarterly metrics that don’t question a company’s sustainability.

So when public shareholders were forced to acclimate to Tesla hands needed wringing. The sustainability before Q2 had been based on the hope that CEO Elon Musk could muster up some fresh capital. The sustainability of the business model was not based on straight-lining trends or having a few years of cash burn before you run out.

Many of those public-type shareholders then turned bearish and even shorted because this Tesla model was more like an Uber model that burned a ton of cash, but Uber wasn’t public. Nobody needed to care about Uber’s cash burn except its private investors.

But Tesla’s cash burn model on any other company that couldn’t snap their fingers for new capital was of course quickly going to zero. Musk was of course a different story and could raise capital until he didn’t need to.

Should Be Public, Now

But behind the curtains Musk started seeing the gross margin ramp from S&X and Model 3. He realized he didn’t need to conjure up more investors to stay afloat. He could do it from his own cash flow.

From there he quickly calculated, our guess, is “if I don’t need them now, then why do I need them.”

Simultaneously the story quickly turned to a potential earnings inflection story, the types most investors only dream of.

The funny thing is so many good analysts used to normal public companies dug themselves into being bearish on the cash burn, raise money model that when the company said we’re going profitable in Q3 and Q4, they couldn’t swivel their heads to appreciate.

The story flipped and quick.

But now with flipping fast to profits on booming S&X margins (we think 37% in Q2) and jumping Model 3 margins, growing deliveries and relatively flattish operating expenses, this company’s story just flipped.

It went from a cash burn to cash flow story.

This is the type of story that would be a great public company.  If it stays public it probably won’t be until about a $500-600 share price before the bears on the sell-side will finally come around and say this thing could be worth $1,500 in 5 years.

No more bull case-bear case from the same analyst who couldn’t see the ramp. They all will be piling in bullish, “must own.”

But before they turn bullish they have to wipe out all those 40-page cash burn reports from their memory that dug themselves bearish.

Keep It Simple Earnings, KISS

Well maybe KISS stands for something else but we use any excuse to promote an earnings focus.

We don’t hate companies, we don’t love companies. We love earnings stories. That’s the bottom line.

The market’s a market to decide where you’re going to get your returns.  I don’t need to hate one vendor that I don’t think I’ll get the right return and I don’t need to love another.

When I go into a Wal-Mart or shop on Amazon I don’t need to love ’em or hate ’em. Either they have what I need or they don’t.

So in this market, the Stock Market, I also don’t need to love or hate the companies that are offering me a return to invest with them. I just need to figure out what that return is and next.

So all this bearish, negative, short reports that turns into a battleground, love ’em or hate ’em, clouds objectivity to see that this earnings progression was about to be huge.

After a loss of $4+ in Q2 we have Tesla going to a gain in the following quarters. Our quarterly EPS model ramps like this from Q3 onward (Full model for subscribers):

0.37 1.64 4.14 4.59 4.62 4.64

But if some bear hated the cash burn, raise money business model that public companies are not typically known for, while it’s understandable, they could never objectively switch gears to catch this incredible earnings ramp.

Love ’em, hate ’em works for sports teams unless you’re a sports better.

But love ’em and hate ’em for companies tarnishes objectivity.

We offer a fix. Love or hate the earnings progression, not the company. Then you can be objective when things change up or down.

We’re 60’s-style, peace and love all the companies, but the earnings are what are in question.

Conclusion

Personally, I hope this company stays public. Ok, if that gets announced maybe the stock takes a hit but the upside is much higher than $420.

The hate, I guess was built because public investors and the media weren’t used to such a business model. I remember that business model in the 90s. Not many of those companies lasted. But Musk and Tesla survived.

It’s funny too. Usually sell-side analysts’ and all analysts’ favorite word is “inflection.” You listen on conference calls and they all salivate to hear a company say “inflection.”

Inflection…. AAAH.

With Tesla, they have earnings inflection right before their eyes but because of the hate of the business model as a public company they missed it.

And now this turns into one of the greatest earnings inflection stories in history.

We’re ok either way. Staying public or going private we wish Tesla and Musk much continued success, profits, and love.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We are long Tesla.

Updated 6:46 PM EDT, August 8th, 2018