Tesla Investors Get Good News. It's a Value Stock. -- Barrons.com
7:10 am ET November 23, 2022 (Dow Jones) Print
Al Root
Tesla stock has been badly beaten up in recent weeks. There isn't much for bulls to be thankful for. But stock price declines prompted a pre-holiday upgrade from one analyst. And another sees Tesla approaching value stock territory.
Wednesday, Citi analyst Itay Michaeli upgraded Tesla (ticker: TSLA) stock to Hold from Sell. It isn't a upgrade to Buy, but investors will likely take it. Tesla stock has fallen about 45% since mid-October, wiping out more than $400 billion in market capitalization. The Nasdaq Composite Index is only down about 3% over the same period.
"We feel that some of the prior baked-in expectations that we didn't agree with are out of the stock," wrote Michaeli in his upgrade report. "To be sure, macro/competitive concerns are likely to remain an overhang with [EV] capacity rising, but as we've previously written, in a hard [economic] landing scenario Tesla's [long-term] competitive position likely also improves."
Tesla is the only U.S. pure-play electric vehicle (EV) company that generates free cash flow that has achieved manufacturing scale. A deep recession will make it harder for start-ups needing external capital to catch up. A downturn will also hurt traditional auto makers' cash flow, which they are using to develop EVs and build new battery manufacturing capacity.
Morgan Stanley analyst Adam Jonas laid out some of the "macro/competitive" concerns Michaeli mentioned. "Tesla is approaching our $150 [per share] bear case, driven by price cuts in China, decelerating EV demand, and other market currents," wrote the analyst in a Thursday report.
(Those other market currents include Twitter and cryptocurrency problems.)
He points out that at current prices, Tesla stock is trading at about 26 times estimated 2025 earnings. That's not bad for a company he expects to grow sales at 23% a year on average between now and 2030. Against that backdrop, Jonas wonders if a "value opportunity is emerging" in Tesla stock.
Jonas's price target for Tesla stock is unchanged at $330 a share. Michaeli raised his target to $176 a share from $141.33 with the upgrade.
The average analyst price target is now at about $289 a share, according to FactSet. That implies gains of roughly 70% from recent levels. Impressive, but something needs to change investor sentiment to get shares moving. Maybe it will be EV purchase tax credits, passed in the inflation reduction act, which come into effect in 2023. Maybe it will simply be value investors taking a look at a stock they once felt was too expensive.
Whatever turns the sentiment tide for Tesla stock, Tesla bulls will take it.
Tesla stock is up 1.7% in premarket trading Wednesday at just under $173 a share. S&P 500 and Dow Jones Industrial Average futures are flat.
Bullish
