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Tesla’s deals to let other automakers use its charging network have helped its shares soar more than 50% in a month.
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After Tesla’s epic rise, Wall Street needs to fish the stock or slow it down. Barclays decided to scrap the bait.
Analyst Dan Levy downgraded shares of Tesla (Ticker: TSLA) from “buy” to “hold” on Wednesday and raised his price target to $260 per share from $220.
The downgrade with an increase in the price target makes perfect sense. Tesla shares are up about $93, or 52%, over the past month, adding nearly $300 billion to the company’s market cap.
EV charging deals with Ford Motor (F), General Motors (GM) and Rivian Automotive (RIVN) have helped fuel the recovery. So does the optimism in AI-related companies following Nvidia’s (NVDA) stunning quarterly results. Tesla uses AI to train its autonomous driving technology.
Levy is more focused on the existing auto business than the AI opportunity and isn’t as bullish on things as stock price performance might suggest. Further vehicle price cuts are possible, which would put pressure on profit margins and earnings. “Indeed, relative disregard for the challenges to near-term Tesla fundamentals amid the strong rally is our primary concern for the stock,” Levy wrote.
He expects the company to make $4 per share in 2024. Wall Street consensus is at $4.78. Even if Tesla does post earnings closer to $5 in 2024, the recent rally has seen its price-to-earnings ratio jump to about 57 times estimated 2024 numbers from 38 a month ago .
For Levy, investors have simply become overly optimistic too quickly. Evidence of growing optimism is easy to find. A month ago, the average analyst price target for Tesla stock was about $190 per share, about $10 above where the stock was trading. Today, the average price target is about $203 per share, about $71 below Tesla’s closing price on Tuesday.
The highest price target on Wall Street a month ago was $300 a share from New Street Research analyst Pierre Ferragu among the larger U.S. brokerages. RBC analyst Tom Narayan’s highest target is currently $305 per share. Ferragu is still at $300. Price targets are rising, but Wall Street just can’t keep up.
With the downgrade, about 48% of analysts covering the share price rate it as a buy, up from nearly 50% a few weeks ago. The average buy rating for stocks in the S&P 500 is about 55%.
The average analyst target price for a stock in the S&P 500 implies a gain of about 14%. It’s unusual for a stock to trade 35% above the consensus price target.
However, Tesla is an unusual company.
The downgrade doesn’t have a major impact on Tesla stock in premarket trading on Wednesday. Shares were up about 1.3%, while S&P 500 futures were flat and Nasdaq composite futures were down about 0.1%.
Write to Al Root at [email protected]