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Will Tesla (TSLA) Incur a Loss Again this Earnings Season?

Tesla Motors, Inc. TSLA is set to report first-quarter 2016 results on May 4. In the last quarter, this electric carmaker had posted a negative earnings surprise of 279.41%. Let us see how things are shaping up for this announcement.

Factors Influencing this Quarter

Attractive products, rapid international expansion and improving production capacity are helping boost Tesla’s sales. The company delivered 12,420 Model S and 2,400 Model X vehicles in the first quarter of 2016, marking a 50% improvement over the first quarter of 2015. This should lead to significant revenue growth. The addition of revenues from the Tesla Energy business, launched in Apr 2015, should also aid the top line in the quarter to be reported.

However, despite increasing sales, Tesla remains a loss-making company due to high expenses. In each of the quarters and full-year 2015, Tesla reported significantly higher net loss on both adjusted and reported basis, compared to the corresponding quarters of 2014 and the full year. The company is expected to report losses in the first quarter of 2016 as well.

For 2016, operating expenses are estimated to increase by 20% due to development expenses related to Model 3. However, in first-quarter 2016, operating expenses are expected to increase only marginally from the fourth quarter of 2015, as the company is focusing on expense management.

Earnings Whispers

Our proven model does not conclusively show that Tesla is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Tesla has an Earnings ESP of -57.14%. This is because the Most Accurate estimate of a loss of $1.32 is significantly lower than the Zacks Consensus Estimate of a loss of 84 cents.

Zacks Rank: Tesla carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Axle & Manufacturing Holdings Inc. AXL has an Earnings ESP of +7.04% and a Zacks Rank #3. The company’s first-quarter 2016 financial results are scheduled for release on May 6.

Navistar International Corporation NAV has an Earnings ESP of +21.05% and a Zacks Rank #3. The company is expected to report second-quarter fiscal 2016 (ended Apr 30, 2016) financial numbers on Jun 2.

CarMax Inc. KMX has an Earnings ESP of +1.08% and a Zacks Rank #3. The company will report first-quarter fiscal 2016 (ended May 31, 2016) financial numbers on Jun 21.

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