Tesla Inc. shares dropped on Monday after Chief Executive Elon Musk backed out of his plan to take the Silicon Valley car maker private, and Wall Street remained divided about the stock.
Tesla TSLA, -1.78% lost 4% in early trading and suffered steeper losses in the premarket after closing Friday at $322.82. Tossing yet another curveball at investors, Musk announced in a blog late Friday that he had concluded taking Tesla private was too complicated and distracting, and that it was “better off as a public company.”
Shares have been on a roller-coaster ride since Musk floated the idea of privatization in an Aug. 7 tweet, which reportedly has sparked a Securities and Exchange investigation. They rallied 11% on that day to close at $379.57; they are off 18% from that peak and off nearly 9% from the close on the day before the tweet.
Weighing in on Monday, Baird analyst Ben Kallo, a longtime Tesla bull, said investors should expect Tesla shares to come under pressure in the near term as they question the outcome of staying public, but that there was a silver lining.
“That said, we expect shares to appreciate over the intermediate term as the focus shifts back to fundamentals, which we believe may be underappreciated,” he said.
He added that Baird would recommend buying Tesla on any weakness, given it expects a move higher ahead of third-quarter deliveries and results, including a potential bump from Tesla appearing to have made “significant progress on the Model 3 production ramp.”
Baird analysts have held an outperform rating on Tesla since early 2016, with a current price target of $411. Shortly after Musk floated the idea of a $420-a-share buyout, the analysts predicted shares would go even higher, though they’ve never reached beyond an intraday high of $387.46 on Aug. 7.
Among the clouds the Baird analyst said he sees hanging over Tesla are a potential SEC penalty, though he thinks the risks on that may be overblown, and that concerns about potential funding may resurface.
Both bulls and bears “will be happy to see Tesla remain public, and the stock debate for the ages will rage on,” analysts at Evercore ISI said in a note Monday. The going-private talks have proven to be a “three-week distraction that really did not need to take place in the public domain,” they said.
It remains to be seen if regulators continue their investigations into the original tweet, and “we see no reason they won’t,” the Evercore ISI analysts said.
As far as Musk’s Twitter habit, “the negatives outweigh the positives and that this is something that the board should give serious consideration to placing controls around going forward, if they have not done so already,” they said.
Analysts at CreditSights, who focus on company debt, said the three-week “’go-private’ drama further underscored the risks associated with Musk’s “singularly influencing the direction of the company.”
There will now be lingering lawsuits over the coming months that add “to the already long laundry list of risks and bad PR on governance,” they said.
Analysts at CFRA cut their price target on the Tesla stock to $325 from $380, removing not only the premium added for the potential going-private transaction but also “a valuation penalty ($25 per share) that we asses for reduced management creditability and increased legal risk (SEC investigations and investor lawsuits) and distraction,” they said.
Musk is also taking some heat for his disclosure about not taking the company private coming out close to midnight on Friday evening, as opposed to the timing of the early August go-public teaser tweet, which came in the middle of the trading day.
“Releasing important news after 6 p.m. on a Friday is generally left to penny stocks and promoters, not companies worth $55 billion,” said Michael O’Rourke, chief market strategist at JonesTrading, in a note to clients.
“After so many missteps from the Q1 conference call to the potentially fraudulent and manipulative privatization tweet, one would think the Board would have at least requested this disclosure in a professional manner,” he said, adding that such behavior is often “ruthlessly punished by markets.”
“The traditional thinking is that when the company’s leadership clearly exhibits that the investors’ interests are second to their own, shareholders should not be surprised when the next shoe drops,” said O’Rourke.
Tesla shares have gained 0.4% in 2018, while the S&P 500 SPX, +0.79% has gained 8.3% and the Dow Jones Industrial Average DJIA, +1.02% has gained 5.2%.
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