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Shares of Tesla Inc. shot back above $850 Tuesday before paring gains, after Bernstein analyst Toni Sacconaghi nearly doubled his price target, saying he didn’t see any negative catalysts on the horizon for a stock that wasn’t especially expensive.
The electric car maker’s stock TSLA, +5.91% rose as much 7.5% to an intraday high of $860.00, before paring gains to be up 5.8% in midday trading. It has now more than doubled (up 102%) just this year. The stock is 4.6% below its record close of $887.06 on Feb. 4.
Sacconaghi raised his stock price target to $730, which is still 14% below current levels, from $325. He reiterated the market perform rating that he’s had on Tesla for at least the past three years.
Sacconaghi said he has been thinking about how to value Tesla, following the stock’s meteoric rise over the last several weeks. Using traditional auto valuations and discounted cash flows, he said it would be difficult to justify the current share price, which would suggest Tesla will eventually become bigger and more profitable than Volkswagen.
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However, he acknowledged that investor perceptions have changed, with Tesla becoming the “ultimate ‘possibility’ stock.”
“Investors feel much better about Tesla’s ability to be sustainably profitable; Model 3 demand remains healthy; [gross margins and operating expenditures] are both poised to materially improve;” competition is sputtering; and product and production pipelines are robust,” Sacconaghi wrote in a note to clients.
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With regard to competition, after Tesla Chief Executive Elon Musk learned that Microsoft Corp. MSFT, +0.72% founder Bill Gates had bought an electric Porsche Taycan, Musk described in a tweet that his conversations with Gates had been “underwhelming.”
Sacconaghi said he believes Tesla’s addressable market will grow 30-fold over the next 20 years, so even if the company’s shares of the electric vehicle market gets cut in half, it will still grow 15-fold. In addition, Tesla has “significant addition optionality” through the truck, self-driving, battery technology and solar markets.
Beside the possibilities, Sacconaghi sees little downside risk in the near term: “We are skeptical that upside possibilities are likely to be expunged any time soon — suggesting no imminent negative catalysts for the stock.”
He also suggested that Tesla’s stock is “not unprecedentedly expensive,” even after the recent bubble-like rally. “Notably, Tesla is the single fastest-growing large-cap tech stock today, and the scarcity of such a profile inevitably commands a premium, especially in this market,” Sacconaghi wrote.
He said at $800, Tesla’s stock would be valued at 33-times consensus 2023 earnings before interest and taxes (EBIT), while Netflix Inc. NFLX, +1.85% trades at 20-times, Amazon.com Inc. AMZN, +0.76% trades at 24-times and ServiceNow Inc. NOW, -0.21% trades at 29-times, all of which have slower growth.
See related: Tesla’s biggest bull stampedes to a $7,000 price target.
Despite all of Sacconaghi’s justifications for where Tesla’s stock is trading, keep in mind that he’s not recommending investors buy the stock. For Bernstein, a market perform rating indicates the analyst believes the stock will perform in line with the broader stock market, plus or minus 15 percentage points, over the next year.
Of the 31 analysts surveyed by FactSet, there are currently no less than 5 analysts with price targets above $700 and just one with a price target at $800. The average target of $526.71 is 38% below current levels. The average rating is the equivalent of hold, with 14 analysts having sell or underweight ratings, 11 with the equivalent of hold and just six with the equivalent of buy ratings.
Tesla’s stock has run up 175% over the past 12 months, while shares of rival General Motors Co. GM, -1.17% have lost 13% and Ford Motor Co.’s shares F, -0.74% have declined 5.9%. The S&P 500 index SPX, -0.40% has gained 21% over the past year.