In one of the more bizarre pieces of news recently, tech CEOs Mark Zuckerberg of Meta (META) and Elon Musk of Tesla (TSLA) seem to have agreed to fight each other in a cage. On June 20th, one of the trending topics on Twitter was Project 92, a competitor to Twitter that is being developed by Meta. In response, here is what Musk, who also heads Twitter, tweeted.
In response, on Instagram, Zuckerberg responded, “Send me location”, to which Musk responded, “Vegas Octagon.”
Is this really happening? Who can say. However, we could look at the stocks of the companies these men lead, and see which would win in a match between the two. Here are some key takeaways from each company’s analyst notes, as well as how Tesla and Meta scored on a few key investment metrics as of June 22, 2023.
Is Tesla a Good Stock to Buy?
Earlier this month, Tesla and General Motors announced a charging partnership where GM integrates Tesla's North American Charging Standard, or NACS, connector starting in 2024, which will allow GM EV drivers to charge at 12,000 Tesla Superchargers throughout North America. Tesla also recently announced a similar charging partnership with Ford to allow Ford EV drivers to charge at Tesla Superchargers. After reviewing these announcements, Morningstar analyst Seth Goldstein sees no reason to change his US$215 per share fair value estimate for Tesla, or his Narrow economic moat rating.
“While this is positive for the industry, we see less of a positive impact to Tesla. Arguably, access to Tesla's fast charging network could be considered an advantage that would cause a consumer to choose a Tesla over other EVs. However, we don't see the news as negative, either, as we think Tesla's technological and cost advantages still remain in place—which underpin our narrow moat rating—and will allow deliveries to grow to 5 million vehicles by 2030, up from 1.3 million in 2022,” he writes.
- Price/Fair Value: 1.21
- Morningstar Uncertainty Rating: Very High
- Morningstar Economic Moat Rating: Narrow
- Morningstar Capital Allocation Rating: Exemplary
Is Meta a Good Stock to Buy?
Meta's Facebook is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and Morningstar’s expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.
While utilization of consumer data is under scrutiny, Morningstar analyst Ali Moghrabi thinks Meta’s large audience size will still attract ad dollars. Growth in Meta’s average ad revenue per user indicates advertisers' willingness to pay more for ads, as they expect high return on investment from these targeted efforts.
“We believe Meta Stock will continue to benefit from an increased allocation of marketing and advertising dollars toward online advertising, more specifically social network and video ads where Meta is especially well positioned. The firm’s Facebook app, along with Instagram, Messenger, and WhatsApp, is among the world’s most widely used apps on both Android and iPhone smartphones,” he writes.
- Price/Fair Value: 1.01
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Wide
- Morningstar Capital Allocation Rating: Exemplary
Who wins this stock-versus-stock matchup? That depends on what Morningstar metrics matter most to an investor. Let’s take a deeper dive into a few of them.
Price/Fair Value Winner: Meta Stock
Morningstar’s analysts calculate a fair value estimate for each stock they cover. The fair value estimate represents the intrinsic value of a stock, based on how much cash we think the company can generate in the future. A stock’s price/fair value is simply its current market price divided by the fair value estimate. A stock trading below 1.0 is undervalued; a stock trading around 1.0 is fairly valued; and a stock trading above 1.0 is overvalued.
As of June 22, 2023, we think Meta’s stock is about 1% overvalued, while Tesla’s stock is 20% overvalued. The winner from a price perspective is Meta stock, which is trading at a more attractive price today.
Watch: The Morningstar Fair Value Estimate
Uncertainty Winner: Meta Stock
The Morningstar Uncertainty Rating represents the predictability of the company’s future cash flows and, therefore, the level of certainty we have in our fair value estimate of a given company. Companies that enjoy sales predictability, modest operating and financial leverage, and limited exposure to contingent events carry lower Uncertainty Ratings; those with less-predictable sales, significant leverage, and significant exposure to contingent events carry higher Uncertainty Ratings.
Our analysts think Meta’s cash flow uncertainty is High, while Tesla’s uncertainty is Very High. Meta wins for its lower Uncertainty Rating because we’re more confident in our fair value estimate of that stock.
Economic Moat Winner: Meta Stock
The Morningstar Economic Moat Rating represents a company's maintainable competitive advantage. A company with an economic moat can fend off competition and earn high returns on capital for many years to come. A company whose competitive advantages we expect to last more than 20 years has a wide moat, one that can fend off its rivals for 10 years has a narrow moat, while a firm with either no advantage or one that we think will quickly dissipate has no moat.
Our analysts think both Meta has a Wide economic moat, while Tesla has a Narrow economic moat. Meta wins this round.
Watch: The Morningstar Economic Moat Rating
Capital Allocation Winner: Tie
The Morningstar Capital Allocation Rating represents our assessment of how well a company manages its balance sheet, investments, and shareholder distributions. Analysts assign each company one of three ratings—Exemplary, Standard, or Poor—based on their assessments of how well a management team provides shareholder returns. Adept corporate managers can make a good company even better.
Both Meta and Tesla earn our top rating when it comes to capital allocation.
Watch: Introducing the Morningstar Capital Allocation Rating
Which Is the Best Stock to Buy Today?
At the end of the day, the “winner” of any stock-versus-stock matchup from Morningstar’s perspective is the stock that’s trading at the largest discount to our fair value estimate after being adjusted for uncertainty. The Morningstar Rating for stocks encapsulates just that. Stocks rated 4 and 5 stars are undervalued after being adjusted for uncertainty, stocks rated 3 stars are fairly valued, and stocks rated 1 or 2 stars are overvalued after being adjusted for uncertainty.
While neither stock is undervalued, based on our fair value estimates, Meta stock is more attractively priced than Tesla today. Meta is the better stock to buy today from Morningstar’s perspective.
Watch: The Morningstar Rating for Stocks
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