At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
A good day for Kermit the Frog
Tree-huggers and Muppet-lovers rejoice! It just got a whole lot easier being green -- and a lot safer investing in green energy. At least, that's what Barclays Capital thinks. On Friday, this top-rated British banker announced that it was initiating coverage on a whole host of clean-energy companies, an industry that, the analyst points out, is currently trading "below recessionary lows." Though it doesn't like all of them, Barclays doesn't hate any of them, and has high hopes for several.
Arguing that a "multiyear secular growth" trend in energy efficiency has begun, Barclays believes the best companies to profit from the trend are Ameresco
Top honors go to Tesla, the company behind the Roadster battery-powered car. Barclays has particularly high hopes for the drive to "enhanced fuel efficiency" in automobiles and argues that we will see "meaningful adoption" of electric cars "over the next several years." If true, this should be good news for companies such as Tesla, but also for electric Focus maker Ford
Tesla Motors: Profits? We don't need no stinkin' profits!
But if Barclays likes Tesla (and it does), the banker sure has a funny way of showing it. Endorsing the stock, Barclays nonetheless admits that the company will probably end up losing $2.15 per share this year and then lose money again in 2012.
Of course, it's hard to value a company (positively, at least) based on negative profits. So Barclays tells investors to look even farther down the road, and assign Tesla a 37 multiple to what the analyst thinks it can earn in 2013. ($1.02, to be precise.) Even farther out, Barclays projects a $2.50-per-share profit on Tesla in 2014 and a 14 multiple to such hypothetical profits.
Know what you don't know
But honestly, I'm not sure how much value there is to be had in such long-term prognostication-cum-navel-gazing. I mean, maybe Tesla is worth 14 times what it might earn three years from now. But Ford and GM are both selling for single-digit multiples to profits they've already earned. You can value those two on fact, rather than just opinion.
As for Tesla, here are the facts as they stand today:
- The company's not profitable.
- It has about $278 million in cash, to tide it over till it becomes profitable.
- But it also has $226 million in debt and is burning cash at an annualized rate approaching $280 million -- enough to clean out its bank account in 12 months' time.
Chances are, therefore, that even if Barclays is right that Tesla will turn profitable in 2013, it won't be earning any $1.02 per share -- or $2.50 per share in 2014, either. Chances are Tesla will have to raise cash by issuing more stock and dilute its existing shareholders considerably, long before profitability is reached.
Will Tesla ultimately reach its goal of turning a profit? I think it will. The company's Roadster e-car is wildly popular, and at half the price, its upcoming Model S sedan will be even more so. Just don't you expect to profit from its success. Not at today's prices.
Want a better way to profit from the drive to energy-efficient automobiles? Here at the Fool, we think we've found the closest thing to a "sure thing" in green energy that's out there today. Read about it in our new -- and free! -- report: " One Stock to Own Before Nat Gas Act 2011 Becomes Law ."
Fool contributor Rich Smith does not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 310 out of more than 170,000 members.
The Motley Fool owns shares of Ford and Power-One. Motley Fool newsletter services have recommended buying shares of Ameresco, Ford, and General Motors. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.