Reuters
- Tesla shares are far too expensive to recommend after more than tripling in 2020, the Bernstein analyst Toni Sacconaghi wrote in a note.
- The firm lowered its Tesla stock rating to “underperform” from “market perform” on Tuesday and maintained a $900 price target, implying that shares will tumble 42% over the next year.
- Though the automaker recently beat earnings and crept closer to inclusion in the S&P 500, its valuation “is mind-boggling,” the analyst wrote.
- Estimating Tesla stock’s near-term trend “could be a fool’s game,” but risks including slowed profit growth, a delayed product pipeline, and market rotation to value stocks stand to drag prices lower, he added.
- Watch Tesla trade live here.
Tesla’s rally has gone too far, and investors should wait for a better time to buy in, according to the Bernstein analyst Toni Sacconaghi.
The firm lowered its rating on Tesla shares to “underperform” from “market perform” on Tuesday, deeming its massive year-to-date gains unsustainable. The updated rating is purely a valuation call, Sacconaghi said. Tesla shares leaped 59% in the past month alone as the automaker beat earnings expectations and came closer to inclusion in the S&P 500.
Investors are also looking to the company’s Battery Day event for hints about how it may extend its lead over other electric-vehicle manufacturers.
Bernstein maintained its $900 price target, implying that shares will sink 42% from Monday’s close over the next year.
Even with Tesla’s earnings beat and turn to profitability, the stock’s valuation “is mind-boggling,” Sacconaghi wrote. With a market cap larger than Toyota’s and Volkswagen’s, the company has experienced a rally more closely resembling a tech-bubble boom than a traditional automaker’s trend, he added.
“Despite our relatively bullish stance on electric vehicle evolution, and structural advantages we believe Tesla may hold, we find it difficult to justify Tesla’s current valuation even under our most bullish/imaginative scenarios,” the analyst wrote.
Read more: An expert shares how to get started in real-estate investing and bring in passive income
Tesla shares traded as much as 4% lower on Tuesday before paring some losses.
Estimating Tesla’s near-term trend “could be a fool’s game,” Sacconaghi said. Current-quarter expectations are reasonable, and the company could surprise to the upside on Battery Day. The stock also boasts strong price momentum.
But several variables stand to end the shares’ wild leap. Bernstein said a broad rotation to value stocks could pull investor dollars from the automaker after weeks of crowding in popular growth names. Tesla’s rollout of the Model Y SUV could cannibalize Model 3 sales, the analyst said. Even with Tesla’s Cybertruck, Semi, and new Roadster in the pipeline, the new models could still fail to sustain 30% growth over the next few years, Sacconaghi added.
Still, Bernstein laid out a bull case for the stock that would place shares at least 30% higher, at $2,000 each. To set a target price at such lofty levels “requires you to believe the company will permanently transform the auto industry’s economics,” Sacconaghi said. This could come from Tesla reaching its goal of 6 million deliveries by 2030 with a 15% operating margin while also succeeding in its Semi and energy-storage businesses, he said. Profits could also be boosted by greater uptake of Tesla’s autonomous-driving software.
Achieving such successes, however, is unprecedented in the automotive industry. Features like Autopilot tend to see their prices fall over time. The operating-margin target is roughly twice those of other mainstream automakers. Unless Tesla can boast the same margins as Porsche while delivering millions more cars, its share price can’t reasonably turn higher, Sacconaghi said.
Tesla traded at $1,501.82 per share as of 2:30 p.m. ET on Tuesday, up 265% year-to-date.
Now read more markets coverage from Markets Insider and Business Insider:
US consumer confidence snaps 3-month winning streak as new COVID outbreaks stifle reopening optimism
