The Electric Vehicle Company
reported its best-ever quarterly results Monday night, but investors and analysts greet the news with measured optimism — a sign that Tesla is maturing as a company.
Tesla (ticker: TSLA) reported $1.45 in adjusted earnings per share for the second quarter, much higher than the roughly 95 cents analysts were looking for. Legal credit sales – a source of income considered less sustainable than vehicle sales – fell, but corporate profits soared to record highs on the back of strong profitability in the automotive division.
Tesla is generating the credit by making more than its fair share of zero-emission cars and selling it to manufacturers that still rely on internal combustion engines. Pessimists about the stock think its source of income will decline over time.
However, the stock rose just 0.9% in early trading on Tuesday. The
Dow Jones industrial average,
by comparison, 0.5% and 0.6% were down respectively.
It’s a moderate response to a good quarter, typical of the way mature company stocks behave. Tesla stock is up more than 10% in response to three of its four quarterly reports from 2019. But it rose or fell an average of about 2.5% in response to the earnings reports for 2020.
The typical move in 2020 was a price drop in response to news of better-than-expected results. The same happened after the publication of the results for the first quarter of 2021.
That’s another sign of maturity. A small decline in response to better-than-expected results is the typical outcome for stocks. Investors always expect companies to outperform analysts’ forecasts, and when they get that result, they “sell the news.”
The reaction of Wall Street analysts to the latest results is another sign of maturity. Mizuho analyst Vijay Rakesh raised his target for Tesla’s stock price by $5 to $825 following the news, up less than 1%.
In January, RBC analyst Joe Spak raised his $700 a share price target from $339 after changing his view of Tesla’s business. That was a huge change of course from a major broker.
Smaller changes in price targets can indicate that a company is becoming more stable and that analysts believe they have a handle on what is happening. That reduces the need for them to drastically revise their views in response to events.
Overall, the analyst’s average price is up about $18 or 3% in response to Monday’s results to about $644 a share. Tesla shares are trading about 1% or 2% above the average analyst price.
Target prices generally reflect where analysts believe a stock must trade in order to earn a reasonable return in the future. The average price target for stocks in the S&P 500 implies a gain of 7%.
Even the fact that Tesla is trading around its average analyst target is a sign of maturity. A year ago, the average price target for Tesla stock was about $225, while the price was above $300.
Shareholders and bulls on the stock may want a bigger response from the stock when earnings are strong, but the days of 20% moves, up or down, may be over for Tesla. That’s more proof that Tesla is here to stay as the world’s most valuable auto company.