Hopes that Greek debt negotiations may result in an agreement helped US stocks close higher yesterday in a session that saw Apple Inc (NASDAQ:AAPL) close with a market cap of over $700bn, the first corporation ever to have done so.
After the gains made yesterday, US markets look a bit more hesitant on Wednesday with oil prices dropping sharply from recent peaks and uncertainty still abound ahead of the Eurogroup meeting on Greece’s future.
Strong earnings from Coca-Cola Enterprises Inc (NYSE:CCE) eased concerns over US corporate exposure to slowing economies in major export markets. As was demonstrated best by Apple, the strong US dollar needn’t be an issue for profitability of US firms.
Quarterly earnings will be a big focus with a number of household names reporting on Wednesday including Cisco, PepsiCo, AOL, Baidu, Trip Advisor and Time Warner following Western Union having beaten estimates overnight.
Tesla Motors Inc (NASDAQ:TSLA) report quarterly earnings Wednesday evening after the close of US markets. The upscale electronic car company is expected to report its biggest quarterly number of vehicle sales ever by a wide margin.
Yesterday, reports emerged indicating that Tesla only sold 120 cars in China during Q4, way below expectations due to misconceptions about charging which could lead to a management shakeup for the China business.
Musk worried investors last month when in an interview he voiced disappointment at initial sales in China. There is a lot of room for growth in the US market so sales in China don’t need to fire right out of the starting blocks but with shares at a forward P/E of 133; the eventual expansion into China is baked in. More specific forecasts on China sales as well as clarity on the problems and how they will be addressed could act to soothe shareholders concern.
Domestically, demand continues to outstrip supply with founder and CEO Elon Musk positioning Tesla as the leading-edge company in the space of electronic vehicles. Tesla operates in the luxury car-space and its relative lack of competition from other electronic luxury vehicles to-date has enabled it to maintain high prices. Gross profit margins have improved as high selling prices have been met with reduced costs from production efficiencies.
There is no evidence yet to suggest Tesla’s profit margin is about to diminish but at some point, new entrants such as GM and Volkswagen will force more pricing competition.
Earnings per share are expected to dip in Q4 as Tesla invests more in R&D. As seen by the likes of Jeff Bezos at Amazon, shares could suffer if this looks like becoming a long-running trend.
Order flow results and company insights remain important. While Tesla has capitalised on interest in alternative energy and cars, the crude oil price crash from above $100/bbl last summer toward $50 today raises questions like:
Will Tesla remain the trendy option of choice, or could some of its potential customers migrate back to traditional gas guzzling sports car options? Are Tesla’s customers so wealthy that they don’t care about fuel costs? Tesla shares peaked in September at $290 and have corrected quite steeply loosing over a third in value by the end of December. Expectations have grown leading into this earnings report and prices have traded back above $220.
Futures suggest the:
S&P 500 will open 3 points lower at 2,065 with the
Dow expected to open 53 points lower at 17,815 and the
NASDAQ 2 points lower at 4,279.
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