Tesla (TSLA) stock is doing something it haven’t done in five days — gaining ground. Shares are up nearly 5% Tuesday after Macquarie analyst Maynard Um initiated coverage on TSLA with an Outperform rating and price target of $430, which implies a potential upside of 63% from where the stock is currently trading. (To watch Um’s track record, click here)
From a valuation perspective, Um believes investors should look at TSLA as a technology company rather than as a traditional automotive OEM as its core competencies, growth and true differentiation contrast it with the traditional OEMs. While the analyst recognizes Elon Musk’s actions and behaviour could adversely impact Tesla’s multiple, his base assumption is that Musk will continue to be a key part of Tesla into the foreseeable future.
Um wrote, “We believe Tesla is uniquely positioned to emerge as a leader given its tight integration of its software into its vehicles, technology leadership in electric, and high potential in autonomous with more than 8 million miles of real world driving data collected each day […] In the near term, we believe Tesla faces two major hurdles – manufacturing and liquidity. We believe the manufacturing issues are improving and will continue to improve moving forward. While Tesla must get over its near-term debt maturity hump and drive profitability before investors can get comfort around Tesla’s long-term future, we believe that at the current ramp, the company will be able to get to profitability in the coming quarters and have enough levers – cash flow from ZEV credit & Model 3 sales, access to unused debt commitment, potential for further credit amendments, et al – to get over its debt maturity events in 2018 and 2019. The debt burden is particularly lessened if the stock reaches $360 (convert price) by March 2019.”
Bottom line: “We believe TSLA is an attractive investment for those looking for a longer-term time horizon growth story willing to look past interim volatility, a scarce pure play electric vehicle/energy storage story, and a pure play hedge against oil.”
However, the Street does not share this optimism. Right now, Tesla stock has a Hold analyst consensus rating with only 7 recent Buy ratings. This is versus 10 Hold and 10 sell ratings. Meanwhile, the $320.68 price target suggests a potential upside of 28% from the current levels. (See Tesla’s price targets and analyst ratings on TipRanks)