Red Hot Tesla ETFs in Focus Ahead of Q3 Earnings

Electric carmaker Tesla Motors TSLA is scheduled to report fourth-quarter 2020 results on Jan 27 after market close. Let’s take a closer look at its fundamentals ahead of earnings release.

Tesla has been on a stupendous rally over the past three months, having soared nearly 108% and outperforming the industry’s growth of 86.3%. Notably, the stock joined the S&P 500 Index on Dec 21 and has become the most-valuable company ever added to the index (read: ETFs in Focus on Tesla's S&P 500 Debut).

The solid trend is likely to continue as the luxury carmaker has strong chances of beating estimates this quarter and has seen positive earnings revisions, which are generally a precursor to an earnings beat, ahead of its Q4 report.

Earnings Whispers

Tesla has a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +18.12%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1, 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The electric carmaker saw positive earnings estimate revision of a couple of cents over the past seven days. Analysts increasing estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The earnings track is robust for the company, which delivered a four-quarter average earnings surprise of 319.71%. Additionally, the Zacks Consensus Estimate for the fourth quarter indicates substantial year-over-year growth of 102.3% for earnings and 37.4% for revenues (see: all the Alternative Energy ETFs here).

Tesla, Inc. Price, Consensus and EPS Surprise

Tesla, Inc. price-consensus-eps-surprise-chart | Tesla, Inc. Quote

Further, analysts continued to be bullish for the electric carmaker ahead of the Q4 earnings announcement. One analyst, Baird, has raised the price target on Tesla to $728 from $488 per share, citing that it is entering the next stage of its evolution. Wedbush Securities lifted the price target to $950 from $751 earlier this month, on expectations that Tesla will continue to benefit from tailwinds related to demand for EVs as well as support for shifting consumers away from combustable engines.

Tesla has a Growth Score of A and belongs to a top-ranked Zacks industry (in the top 9%). The Zacks Consensus Estimate for the average target price is $534.81 with nearly 33% of the analysts giving a Strong Buy or a Buy rating ahead of the company’s earnings.

Strong Q4 Production

Earlier this month, Tesla reported better-than-expected deliveries for the fourth quarter of 2020. The company produced 179,757 (163,660 Model 3 and Y, and 16,097 Model S and X) vehicles and delivered a record 180,570 (161,650 Model 3 and Y, and 18,920 Model S and X) vehicles. The strong data came on the back of a rise in demand for its more affordable and newer models. Notably, Model 3 demand has been robust over the past 10 months despite the COVID-19 pandemic (read: 5 ETFs Set to Soar on Tesla's Robust Q4 Deliveries).

For the full year, the electric carmaker delivered 499,550 (442,511 Model 3 and Y, and 57,039 Model S and X) deliveries, up 36% year over year but slightly short of the 500,000 target due to the pandemic. It produced 509,737 (454,932 Model 3 and Y, and 54,805 Model S and X) vehicles in 2020, up 71% year over year.

Tesla expects another year of strong growth in vehicle deliveries as it has been aggressively expanding its vehicle production capacity.

ETFs to Watch

Given this, ETFs having the highest allocation to this luxury carmaker will be in focus going into its earnings announcement. These funds would be the potential movers if Tesla surprises the market.

iShares U.S. Consumer Goods ETF IYK

This ETF offers exposure to U.S. companies that produce a wide range of consumer goods, including food, automobiles, and household goods by tracking the Dow Jones U.S. Consumer Goods Index. It holds about 97 stocks in its basket with Tesla occupying the top position at 20.7% allocation. The fund has amassed $767.8 million in its asset base while trades in a volume of about 27,000 shares. It charges 43 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Consumer Discretionary Select Sector SPDR Fund XLY

This product offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. It is the largest and most-popular product in this space, with AUM of nearly $19.3 billion and an average daily volume of around 3.1 million shares. Holding 61 securities in its basket, Tesla takes the second spot with 18.5% of assets. The fund charges 0.13% in expense ratio and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Cyclical ETFs in Spotlight on Biden's American Rescue Plan).

Franklin Intelligent Machines ETF IQM

This ETF provides access to companies developing technologies that support machine learning as well as those using automated processes. It holds 58 stocks in its basket with Tesla making up for the top firm at 11.9% of assets. The product has accumulated $11.9 million in its asset base and charges 50 bps in annual fees. It trades in a light volume of 4,000 shares a day on average.

ARK Autonomous Technology & Robotics ETF ARKQ

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services as well as technological improvement and advancements in scientific research related to energy, automation and manufacturing, materials and transportation. This approach results in a basket of 46 stocks, with TSLA occupying the top spot with 11.2% share. The product has accumulated $2.8 billion in its asset base and charges 75 bps in fees per year. It trades in volume of 877,000 shares a day on average (read: 5 Top-Performing ARK ETFs Worth Your Attention Now).

MicroSectors FANG+ ETN FNGS

This ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index, designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket with Tesla accounting for 10% share. The product has accumulated $70.6 million in its asset base and charges 58 bps in annual fees. It trades in an average daily volume of 12,000 shares and has a Zacks ETF Rank #3.

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Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

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MICRSFANG (FNGS): ETF Research Reports

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