stock has had a wild ride in 2019, but an analyst at Piper Jaffray says to stick around for huge upside.
Where we were. Tesla stock (ticker: TSLA) has risen about 1% in 2019, though its shares are down 6.5% in the trailing one-year period. Most recently, CEO Elon Musk unveiled the ”Cybertruck,” an electric truck that’s unlike any you’ve ever seen on the road. Whether that’s a good thing or a bad thing depends on who you ask.
What’s new. Piper Jaffray analyst Alexander Potter just raised his price target to $423, which represents 26% upside from Tesla stock’s current levels.
The new price target comes from the analyst’s shift to a valuation model based on discounted cash flow. He argues this model better captures product lines that won’t achieve high-volume production for another several years, like Tesla’s Cybertruck, Semi, and Roadster.
He assumes Tesla’s eventual market share in the luxury sedan segment will rise to 21.5%-plus in the U.S. and 9% in China. He also assumes its share of the luxury SUV market hits 20.5% in the U.S. and 12.5% in China.
“These figures capture the contribution of the Model S, X, 3, and Y—but not the pickup, which we assume will be sold at a rate of 200k-225k units/year,” he added. “We also assume that operating margin will reach 13% by the mid-2020s.”
Telsa stock rose 0.4% to $336.20 on Tuesday, while the broader
index fell 0.7%.
Looking ahead. Potter now has an Overweight rating with a $423 price target. He said the new look at Tesla is part of his firm’s broader effort to focus more directly on disrupters in transportation. “In this industry (or in any industry for that matter), it’s hard to find a more impactful disrupter than Tesla,” he wrote.
“The company has always had a poignant mission statement, a loyal customer base, and bold product designs—but lately Tesla has demonstrated some new skills,” he added.
Those skills he cited included high-volume manufacturing, operating expense control, and frugal capital spending, according to Potter. “For all its controversy and volatility, we think TSLA is a must-own stock in this sector,” he added.
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