After
Tesla
‘s epic run, Wall Street needs to fish or cut bait on the stock. Barclays decided to cut bait.
Analyst Dan Levy on Wednesday downgraded Tesla (ticker: TSLA) shares to Hold from Buy while taking his price target to $260 a share from $220.
The downgrade with a target price bump makes some sense. Tesla shares have jumped about $93, or 52%, over the past month, adding almost $300 billion to the company’s market capitalization.
Electric-vehicle charging deals with
Ford Motor
(F),
General Motors
(GM), and
Rivian Automotive
(RIVN) have helped to catalyze the run. So has optimism about AI-related companies in the wake of
Nvidia’s
(NVDA) blowout quarterly results. Tesla uses AI to train its autonomous-driving technology.
Levy is focused more on the existing car business than the AI opportunity and he doesn’t see things as positively as the stock price action would suggest. More vehicle price cuts are possible, which would pressure profit margins and earnings. “Indeed, the relative disregard of challenges to near-term Tesla fundamentals amid the sharp rally is our key concern for the stock,” wrote Levy.
He sees the company earning $4 a share in 2024. The Wall Street consensus is at $4.78. Even if Tesla does earn closer to $5 in 2024, the recent rally has taken its price-to-earnings ratio to about 57 times estimated 2024 numbers, from 38 times a month ago.
Investors have just become too optimistic too quickly for Levy. Evidence for increasing optimism is easy to find. A month ago, the average analyst price target on Tesla stock was about $190 a share, about $10 above where the stock was trading. Today, the average price target is about $203 a share, about $71 below where Tesla stock closed Tuesday.
The highest price target on Wall Street a month ago, among larger U.S. brokers, was $300 a share from New Street Research analyst Pierre Ferragu. Now the highest target is $305 a share from RBC analyst Tom Narayan. Ferragu is still at $300. Price targets are moving higher but Wall Street just can’t keep up.
WIth the downgrade, about 48% of analysts covering the stock rate shares a Buy, down from almost 50% a few weeks ago. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%.
The average analyst price target for a stock in the S&P 500 implies gains of about 14%. It’s unusual for a stock to be trading 35% higher than the consensus price target.
Tesla, however, is an unusual company.
The downgrade isn’t having much of an impact on Tesla stock in premarket trading Wednesday. Shares were rising about 1.3% while S&P 500 futures traded flat and
Nasdaq Composite
futures were off about 0.1%.
Write to Al Root at [email protected]
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