The Ratings Game
Nearly half of the analysts surveyed by FactSet raised their targets, but the average target suggests the stock is way overpriced
Wall Street turned more positive on Tesla Inc. on Thursday, a day after the Silicon Valley car maker reported another quarter of blowout earnings and said it was on track to sell as many cars in 2020 as it had hoped despite the coronavirus pandemic.
A host of Wall Street analysts, bulls and bears alike, increased their price targets on Tesla
astock. The average target remained well below current prices, however, suggesting most analysts believe the stock is overvalued.
Tesla shares turned lower mid-session Thursday after having hovered close to their record close of $1,643 reached on Monday. The shares rose as much as 7.8% in Wednesday’s after-hours session, minutes after the second-quarter report was released.
The electric vehicle maker late Wednesday reported a surprise second-quarter profit, sales that fell less than forecast, and said it had the capacity to deliver more than 500,000 vehicles this year.
The GAAP and adjusted earnings for the fourth consecutive quarter put Tesla on a course to join the benchmark S&P 500 index
likely within a few months. That would put the stock in the portfolios of countless index-tracking funds, and many managed funds would likely follow suit to balance their holdings.
See related: Tesla picks Austin, Texas as next ‘gigafactory’ location.
No less than 14 of the 33 Wall Street analysts surveyed by FactSet have raised their price targets after the results, including those who are bullish, neutral and bearish on the stock. That lifted the average to $1,152.10 from $751.48 at the end of June, but that target was still 28% below Wednesday’s closing price of $1,592.33.
Among the bulls, analyst Colin Rusch at Oppenheimer more than doubled his target to $2,209, which is 39% above Wednesday’s close, from $968. He reiterated the overweight rating he’s had on the stock for at least the past two years.
“We believe [Tesla] continues to extend its product and process technology advantages as it disrupts the transportation industry by being better, faster and cheaper than competitors,” Rusch wrote in a note to clients.
Rusch is a minority among the analysts covering Tesla, as only 7 of 33 analysts are bullish, compared with 15 that rate the stock the equivalent of hold and 11 who are bearish.
Among those bears, J.P. Morgan’s Ryan Brinkman raised his target to $325, which was 80% below Wednesday’s close, from $295. He’s had an underweight rating on the stock for at least the past three years.
Brinkman said at closer look, the “ostensibly sharp earnings beat” Tesla reported amid a challenging macro environment was driven by “much higher than expected regulatory credit sales, which tend to be lumpy and are expected to decline over time.”
He said despite “genuinely better” results, the stock remains “significantly overvalued.”
If Brinkman held on to his bearish stance, Jeffrey Osborne at Cowen raised his rating on Tesla stock one notch to the equivalent of neutral, and also raised his price target on the stock to $1,100 from $300.
“We fully admit we have been wrong on (Tesla) the last few years,” Osborne said. “Tesla has exceeded our expectations over the past several quarters …. While there have been many bear cases on Tesla over the years, the company has sustained profitability (4 quarters in a row), has ample cash (over $8bn), and new factories in Texas and Germany should make the company’s deliveries less lumpy and back-end loaded.”
Several catalysts for the stock are in store for Tesla within the next year or so, including its “battery day” on Sept. 22 and the launching of the Cybertruck.
Tesla shares are also benefitting from “the scarcity of investment opportunities in the vehicle electrification space,” which could keep their momentum “strong” in the near-term, Emmanuel Rosner at Deutsche Bank said. Rosner upped his price target on Tesla to $1,500 from $1,000.
Meanwhile, Wedbush analyst Dan Ives said Tesla Chief Executive Elon Musk hit a “home run” with the earnings report, as the company continues to defy the skeptics while surprisingly reinstating its 2020 delivery target of 500,000 vehicles, but he kept the neutral rating he’s had on the stock since April 2019.
But he raised his price target to $1,800, which is 13% above Wednesday’s close, from $1,250.
Tesla’s stock has skyrocketed nearly fourfold this year through Wednesday. In comparison, shares of General Motors Co.
have dropped 28%, and Ford Motor Co.
has sank 26%, while the S&P 500 index has gained 1.2%.