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Low Earnings Estimate Fail To Dull Investor Confidence In Tesla Motors Inc’s (NASDAQ:TSLA)

Tesla Motors Inc’s (NASDAQ:TSLA) earnings estimates for this year has been radically cut by analysts. However, the reduced earnings have not resulted in lowering of company’s worth in the eyes of analysts who seen to have a lot of faith in the company.

Earlier this year it was forecasted that the earnings per share of Tesla would be $2.78 per share, and the target price was set at $269. This was $48 higher than the share price that time.

Things started taking a downward turn when Elon Musk, the CEO of Tesla announced in January that the sales in China had fallen. He later said in a gathering of industry executives that Tesla would not reach profitability under accepted accounting principles until 2020.

The 4Q results were also short of expectations due to weak China sales and production delays. Tesla also announced that its capital spending would increase to $1.5 billion in 2015.

The analysts have revised their estimated and cut the earning per share drastically to just 53 cents per share this year. Other estimates for other profit measures like earnings before interest, taxes depreciation and amortization and revenue forecast for beyond 2015 have also fallen.

The average consensus for the share price is $251 which is just 7% less than January’s valuation and still $32 above the current price. Optimistic analysts have made only slight revisions to the price targets.

Most of the analysts are looking at Tesla Motors Inc’s (NASDAQ:TSLA) on as a long term investment. They believe that Tesla could be selling over half a million cars in a decade’s time. Such hopes are further buoyed by the forthcoming announcement of a new product line of batteries for home and utilities.

According to Morgan Stanley’s central model, four-fifths of the company’s current valuation derives from its projected cash flows beyond 2025. This makes it very sensitive to shifts in expectations around sales, discount rates and margins.

Published by Duncan Oleinic

Duncan Oleinic is from New Yourk. After graduating with a degree in physics, he began his career as an analyst in a broking firm. Through this experience he was able to advance to the role of correspondent for a U.S based financial news provider, where he worked from 2001 to 2007. He subsequently joined a merchant banking firm as a financial analyst focused on valuing unlisted companies in the sub-continent. Over the course of his two years here, he performed valuations of several media companies which were later acquired by peers.

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