Tesla Prices secondary offering at $767 a share

Tesla Prices secondary offering at $767 a share
February 17, 2020

 

Last Thursday, Tesla, Inc. (Nasdaq: TSLA) announced its intention to raise $2 billion through a common stock offering. The announcement came only two weeks after the company’s CEO Elon Musk stated that the electric car manufacturer would not capitalize on the rising stock price to amass additional capital. Following the announcement, shares of Tesla declined by about 6% initially, but rounded to close with a gain of 4.8% as analysts and investors perceived it as an attempt to strengthen the balance sheet and speed up expansion plans. Shares ended Thursday at $804, after recording a peak of $818 in intraday trading.

On Friday, Tesla stated that its common stock offering would be priced at $767 a share. As it was only 4.6% below Thursday’s closing price, the outcome is considered positive. The stock closed Friday’s trading session at $800.03, down $3.97 or 0.49% from the previous close. So far this year, shares of Tesla have appreciated by roughly 92%, raising concerns of a bubble in the making.

The Palo Alto, California based Tesla revealed that it would offer 2.65 million shares at the price mentioned above to raise over $2 billion. Notably, to boost investors’ confidence, CEO Elon Musk has committed to purchase $10 million worth of stock, while Oracle billionaire Larry Ellison has decided to buy $1 million worth of shares. The unexpected offering indicates that there is continued demand for the stock of Tesla.

The lead underwriters to the stock offering, Goldman Sachs and Morgan Stanley, possess the right to purchase an additional 397,500 shares in the common stock offering.

The company stated that it intends to utilize the money to “to further strengthen its balance sheet, as well as for general corporate purposes.”

Traders had guessed that Tesla might utilize the recent rally in the stock as an opportunity to amass funds by divesting more shares to ordinary people. Two weeks before, Musk announced that Tesla has no intention to accumulate further capital because it was “spending money, I think, efficiently, and we’re not artificially limiting our progress.”

Musk further said, “It doesn’t make sense to raise money because we expect to generate cash despite this growth level.”

Tesla’s CFO Zachary Kirkhorn resonated the opinion of Musk while discussing the fourth-quarter earnings. However, the company faces several considerable expenses in the months ahead, including the establishment of new factories in Shanghai and Berlin, and investment in battery and self-driving technologies. In a note to clients, New Street analyst Pierre Ferragu wrote that the common stock offering was unexpected but sensible.”

Notably, Chris McNally, Evercore ISI analyst, cheered Tesla’s move and raised the target price to $550 per share, from $250 per share, even though the equity research firm maintained its underperform rating on Tesla.

In a filing made last week, the company acknowledged that the coronavirus outbreak might harm the business.  Tesla also stated that it might “incur expenses or delays relating to such events outside of our control.” The company also revealed that it closed the Gigafactory in Shanghai briefly because of the outbreak.

The secondary stock offering is expected to keep the stock range-bound in the short-term.

Technically, the stock has formed a bearish inverted hammer pattern. Additionally, the stochastic oscillator is also in the overbought region. Therefore, we can anticipate a price correction in the days ahead.

tsl - technical analysis - 17th Feb 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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