Today: Merrill Lynch presents a bearish look at Tesla's plans for a battery factory, and the Palo Alto company's stock dips slightly. Also: Workday zooms higher after detailing earnings, acquisition.
The Lead: Tesla's hot streak ends as analyst presents bear case on Gigafactory
After receiving an immediate bump from Wall Street upon Wednesday's disclosure of its plans to build a massive battery factory dubbed the "Gigafactory," Tesla Motors stock ended with a slight decline Thursday after a Merrill Lynch analyst presented the bear case for such a move.
After topping $260 again in early trading, Tesla dragged down to a daily decline of 0.2 percent to close at $252.54, ending a three-day winning streak that had pushed the Palo Alto company more than 20 percent higher to increasing record prices.
Those gains obtained some steam from Morgan Stanley analyst Adam Jonas, who praised the electric car maker's plans to manufacture its own batteries and develop autonomous driving systems in a Tuesday note that also more than doubled his price target, from $152 to $320. The flip side of Jonas' rosy view arrived Thursday, however, as bearish Bank of America Merrill Lynch analyst John Lovallo issued a note entitled "GIGAntic risk in share price."
Lovallo explained that the automotive industry requires companies to have tons of capital on hand, a trait that will only be exacerbated by Tesla's move into battery manufacturing.
"We believe it is important for investors to remember that Tesla is an auto manufacturer, first and foremost, which is an inherently capital intensive business," Lovallo wrote. "In our view, the Gigafactory investment will translate to even more capital intensity and add further pressure to margins and returns."
The analyst also doubts that Tesla will find enough demand for its batteries to justify the Gigafactory's expense, and will also face competition from other companies that focus on other technologies than the lithium-ion batteries Tesla plans to produce.
Lovallo maintained his price target for Tesla at $65, an extremely bearish call that seems out of step with other analysts. According to Thomson Reuters, the average price target for 12 analysts who cover Tesla is $213.50, and the median target is $221, with Lovallo's estimate easily the lowest of the bunch; the highest is $325.
Tesla gave only scant details about the Gigafactory in its Wednesday blog post, with the most tantalizing remaining question resting on the final location of the massive facility. Tesla said its has narrowed down the candidates to four Southwestern states: Texas, New Mexico, Arizona and Nevada.
All four candidates have their advantages, Mercury News reporter Dana Hull noted Thursday, and all are desperate to obtain the factory, which offers about 6,500 jobs and will be paired with renewable power sources such as solar and wind.
"This would rank as the most attractive industrial project out there," Dennis Cuneo, president of DC Strategic Advisors, told Bloomberg News.
SV150 market report: S&P 500 hits record amid flurry of software earnings reports
Stocks gained Thursday, finally pushing the Standard & Poor's 500 index higher than its record close after flirting with the mark for more than a week. Silicon Valley tech stocks outpaced the large Wall Street indexes as software firms hit highs at earnings-report time and Apple bounced back from recent weakness.
Cloud-software firm Workday soared to record prices after announcing its quarterly and full-year financial performance after the market closed Wednesday, throwing in disclosure of the acquisition of San Francisco startup Identified. The Pleasanton company's stock moved to an intraday record high of $116.47 before closing with a 15.2 percent gain at its all-time closing high of $115.47 after announcing that its 2013 revenues grew 71.4 percent from 2012, to $468.94 million. Canaccord Genuity analyst Richard Davis was among those singing Workday's praises, saying he sees the company "becoming a multi-billion revenue cloud-based replacement of incumbent applications" such as Oracle.
Workday is challenging a company that has already proved its ability to challenge Oracle and other software giants with its cloud offering: Salesforce, which hit its own record highs Thursday ahead of its earnings report. The San Francisco company gained 3.9 percent to $66.22 before announcing 33 percent annual revenue growth amid continuing losses, along with the impending retirement of its chief financial officer; shares dipped slightly in after-hours trading. San Francisco big-data software firm Splunk also showed off strong revenue growth Thursday afternoon amid a record-breaking Wall Street run, as sales gained 52 percent in 2013 to $302.6 million. Splunk shares, which sold for $17 in the company's 2012 initial public offering, reached an intraday record of $97.33 Thursday and closed with a 2.7 percent gain at $95.50; the stock dipped slightly in after-hours trading. More traditional software companies also prospered Thursday, with Adobe gaining 3.1 percent to $69.92 and Oracle rising 1.2 percent to $38.95.
Apple roared back from recent weakness, gaining 2 percent to $527.67 while being named the most admired company in the world for a seventh consecutive year; the Cupertino company continued to face criticism on its response to security concerns last weekend and killed support for an older Mac operating system. Yahoo moved 2.3 percent higher to $38.47 despite revelations that the company's users had their webcam images collected by a British intelligence agency. eBay hit a new nine-year high and gained 1.7 percent to $58.34 as founder and chairman Pierre Omidyar jumped into the San Jose company's ongoing spat with activist investor Carl Icahn, and Google dropped 0.1 percent to $1,219.21 while planning to move its mystery barge to Stockton. Facebook dropped 0.5 percent to $68.94 as a bank announced plans to offer money transfers on the social network, and Hewlett-Packard dropped 0.5 percent to $29.75 after winning a contract with Homeland Security.
Up: Workday, Salesforce, Adobe, Splunk, Yahoo, Yelp, Apple, eBay, SolarCity, Oracle, Symantec, Electronic Arts, SunPower, NetApp, Netflix
Down: Palo Alto Networks, Nvidia, Pandora, Zynga, HP, Applied Materials, Facebook, SanDisk, Gilead, Tesla, Twitter, Intel, Google, Cisco
The SV150 index of Silicon Valley's largest tech companies: Up 11.67, or 0.75 percent, to 1,576.74
The tech-heavy Nasdaq composite index: Up 26.87, or 0.63 percent, to 4,318.93
The blue chip Dow Jones industrial average: Up 74.24, or 0.46 percent, to 16,272.65
And the widely watched Standard & Poor's 500 index: Up 9.13, or 0.49 percent, to 1,854.29
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.