Wall Street Reacts to Talk of Tesla Going Private

Wall Street analysts are starting to react to Tesla Inc. (TSLA
) CEO Elon Musk’s bombshell announcement that he is considering taking the company private.
Baird and J.P. Morgan Chase are among the firms to responding to the news, with both taking more bullish views on the electric automaker.
In a Twitter post, Musk said he was “considering taking Tesla private at $420. Funding secured.” He followed that with an email to employees saying that the “wild swings” in Tesla’s stock was a “major distraction” and that he did not think quarterly expectations were in the company’s best interest. The move, even with funding secured, would still require a shareholder vote, as Musk noted in a later tweet.
Baird analysts said they expect Tesla shares, which are closed at $397.57 Tuesday, to surge past $420 per share. They argued that Tesla has more flexibility in finding funding sources if it remains public, with investors benefiting from added liquidity and oversight.
“We think some shareholders may demand a steeper premium than the $420 mark, and we think shares could move higher as shorts cover and investors demand a higher price to go private,” analysts Ben Kallo and David Katter said in a note. “We view the risk/reward as extremely favorable at current levels.”
J.P. Morgan, which has an Underweight rating on Tesla, said the surprising developments “should be considered seriously” despite the lack of details regarding the financing and terms. (See also: What if Tesla Goes Private?)
“Tesla’s CEO says funding is secured. Therefore we are incorporating into our valuation the real possibility the equity will be taken out at $420 per share,” J.P. Morgan analysts said in a note. “We continue to believe Tesla's valuation based on fundamentals alone is worth no more than $195 (our previous price target). But introducing a new 50 percent weighting of $420 suggests a large upward revision to our price target is warranted, and we newly value Tesla at $308 per share."

Other Wall Street Reaction

Bank of America Merrill Lynch analysts, which have an Underperform rating, noted that amid the skepticism over whether a transaction will be executed, the announcement still has “substance.”
Morgan Stanley analysts, with an Equal Weight on Tesla shares, said they “sympathize” the notion that Tesla would be better off as a private company a plan to go private. But they questioned why the company would pre-announce the move and send share prices to a premium.
Tesla shares surged 11% in Tuesday’s session, and were down 1.8% in pre-market trade Wednesday.

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