Recent news about Tesla (TSLA) has been very positive. The production and deliveries of its Model 3 sedans have reached mass-market rates. The electric car giant was profitable in Q3 and should near consistent profitability. The company appears to be gaining market share at a rapid rate, and the market is no longer convinced that it will need to raise additional capital in the near-term. Its international expansion is proceeding as planned, and things appear to be fairly quiet on the management front.
Wedbush analyst Daniel Ives believes Tesla has a golden opportunity to ramp Model 3 unit sales in 2019 and beyond and thus translate into massive FCF and profitability as we look out into 2022-2030. Putting his money where his mouth is, Ives initiates coverage on TSLA stock with a Buy rating and price target of $440, which implies an 18% upside from current levels. (To watch Ives’ track record, click here)
Ives wrote, “The major bull/bear debate on Tesla centers around the valuation and how to analyze an auto/ technology company with so many production/GM variables around its EV leadership position with Model 3 front and center, unmatched brand awareness and technology around battery efficiency, and a technology roadmap that in our opinion is unparalleled over the next decade. With clean technology, luxury automakers, and other auto technology/industrial players as valuation barometers on the trifecta valuation metrics of: PE, Price/Sales, and EV/EBITDA the a valuation range of $340 to $360 for Tesla is fair even with a premium multiple to the group with a EV/ Rev of 2.0x and EV/EBITDA of 13x off FY20 numbers.”
“However, as we view Tesla as a disruptive technology vendor along the likes of Apple, Google, and Amazon and believe a triangulated, longer term valuation approach for Tesla is more accurate to capture the intrinsic value in this innovative technology roadmap. To this point, looking out a more normalized model with $22 of earnings power by 2025 and our FCF projections of $5 billion by 2025 we believe a valuation of $440 per share is fair for Tesla,” the analyst continued.
Overall, TipRanks indicates Wall Street is evenly split between a battle of bulls vs. bears on this electric car giant. Out of 27 analysts polled in the last 3 months, 10 are bullish on Tesla stock, 7 remain sidelined, while 10 are bearish on the stock. The 12-month average price target stands at $338.46, marking nearly 9% in downside potential from where the stock is currently trading.