Shares of Tesla (TSLA) are slipping after CEO Elon Musk announced that the company is staying public as it is a “better path” for shareholders. Commenting on the news, Baird analyst Ben Kallo argued that the decision is positive for all stakeholders as it will allow investor attention to shift back to fundamentals, while his peer at Cowen said he now sees mounting obstacles, including lawsuits and SEC investigations.
TESLA TO REMAIN PUBLIC: Late on Friday, Tesla CEO Elon Musk announced in a blog post that his company will remain public. The post reads in part, “Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company…I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated…After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.” Tesla’s board subsequently dissolved the Special Committee that was evaluating the chief executive’s plan to take the company private and said its members “fully support Elon as he continues to lead the company moving forward”. A buyout would force some of the technology mutual funds to trim their stakes in the company, while opening the door to competitors, The Wall Street Journal reported, adding that one of the investors Musk’s bankers had lined up was believed to be Volkswagen (VLKAY).
STAYING PUBLIC ‘A POSITIVE’: In a research note to investors this morning, Baird’s Kallo said he believes the decision for Tesla to stay public is positive for all stakeholders as it will allow investor attention to shift back to fundamentals at an opportune time as the company has appeared to make significant progress on the Model 3 ramp. Furthermore, the analyst argued that progress on the Model 3 production ramp could be a significant positive catalyst for the stock. If the company achieves its production targets, adjusted EBITDA generation may be underestimated, he contended. Nonetheless, he sees a potential SEC penalty remaining an overhang and expects concerns about potential funding needs will return to the forefront. Kallo recommended buying the stock on any weakness as he expects shares to move higher ahead of third quarter deliveries and results. He reiterated an Outperform rating and $411 price target on Tesla shares. Meanwhile, his peer at Oppenheimer told investors that he believes Tesla scrapping plans to go private removes a “large distraction” that had significant chance of failure and the potential to severely limit the company’s access to capital while attempting to execute on its ambitious product strategy. Analyst Colin Rusch pointed out that investor focus should now revert to cash flow and Model 3 ramp in addition to speculation around the reported SEC investigation. The analyst added that he thinks the investment community has fully digested increased legal expense for Tesla, but myriad opinions exist on what sort of SEC-related punishment may materialize. He reiterated an Outperform rating on the shares.
