Likely probably most other things Elon Musk has set his sights on owning during his lifetime, Twitter has succumbed to his will and accepted his bid to buy out the microblogging platform.
No doubt, Musk is overjoyed, but Wedbush’s Daniel Ives reckons Tesla (TSLA) shareholders aren’t as enthusiastic.
More specifically, the analyst thinks there are two main reasons why Tesla investors are unhappy about Musk’s new endeavor.
For one, while Musk has announced a financing package of $46.5 billion having already secured $13 billion in bank loans, and an additional $12.5 billion in loans against his Tesla stake, he still needs to come up with $21 billion for the deal to come to fruition. Musk might be the world’s richest person, but most of his fortune is tied up in his 21% ownership of Tesla.
Naturally, Tesla investors are worried that this could result in some piece of Musk’s Tesla ownership being sold over the coming year.
Combine the uncertainty around the financing with the debt bring taken on and now a “good portion of Musk’s Tesla shares will be spoken for/used as collateral for this deal, which is putting near-term pressure on the stock,” Ives wrote.
“As we have said before,” stressed the 5-star analyst, “the Twitter transaction was never ideal for Tesla investors as the stock will now ultimately bear the burden of acquiring Twitter through its equity based financing mechanics.”
The other concern revolves around there being another element vying for Musk’s attention. Will Musk be distracted by the new undertaking? Ives doesn’t actually think this is much of a problem, as he does not see Musk becoming CEO of Twitter but rather expects him to take on a Chairman of the Board role with “less time pressures around transforming Twitter.”
“However,” the analyst summed up, “the Twitter deal brings another X variable into the mix for Musk which will be a concern for investors until they are proven otherwise.”
All in all, though, there’s no change to Ives’ Outperform (i.e., Buy) rating or $1,400 price target. The figure makes room for one-year upside of ~61%. (To watch Ives’ track record, click here)
Ives’ objective is on the bullish end of the spectrum; the Street’s average target is a more modest $980.41, which is set to yield returns of ~13% over the coming months. All in, the stock’s Moderate Buy consensus rating is based on 14 Buys, 8 Holds and 5 sells. (See Tesla stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
