Sunday, CFRA analyst Garrett Nelson took his
(ticker: TSLA) price target up $120, or about 11%, to $1,245 a share from $1,125.
“The signing of the Inflation Reduction Act was the equivalent of Christmas in August for Elon Musk & Co.,” wrote Nelson in his research update. He calls
the biggest winner from the new law since the company sells the industry’s two most popular EVs–the Model 3 and Model Y. He expects most 3 and Y trims to qualify for the $7,500 purchase tax credit.
Previously, Tesla buyers didn’t qualify for any credit because Tesla had hit the manufacturer cap of 200,000 units. The cap was a feature of the old law–no more credits were available when cumulative EV sales hit that level.
“The new law significantly alleviates concerns about EV competition, as roughly 70% of the 72 EV models currently for sale in the U.S. suddenly became ineligible for the tax credit under the new law,” added Nelson. EVs need to be manufactured in North America to qualify for the new credit. That will exclude some EV models from, say,
(000270.Korea) which are assembled in South Korea.
Nelson’s target is based on a 60 times multiple on 2024 earnings per share. He expects Tesla to earn about $20.75 a share in 2024, up from a prior estimate of $18.75. The Wall Street consensus for 2024 is about $20.20 a share.
With an average analyst price target of $884 a share, Wall Street seems to think Tesla is worth about 44 times estimated 2024 earnings. The
trade for about 16 and 20 times estimated 2024 earnings, respectively.
The $884 target is also right about where Tesla stock is trading. That isn’t a big surprise since Wall Street appears split on the stock. Just over half of the analysts covering Tesla rate share Buy. The other half say ‘don’t buy.’ The average Buy-rating ratio for stocks in the S&P is about 58%, a few percentage points higher than Tesla. The average analyst price target implies gains of about 13% for a stock in the S&P.
The Tesla ‘don’t buy’ ratings are roughly split between Hold and Sell ratings. Tesla has a high Sell-rating ratio for a large stock with just under a quarter of the analysts putting the most negative rating on shares. The average Sell-rating ratio for a stock in the S&P is less than 10%.
The Buy-Sell rating disparity between Tesla and typical S&P stocks is one reason Tesla tends to be more volatile than other stocks. Tesla tends to go up or down roughly twice as fast as the overall S&P 500.
Shares are off about 1.9% in premarket trading Monday. S&P 500 futures are down about 1.2. That ratio is only 1.6 times. The two times figure is just a rule of thumb and anything can happen on one trading day.
Coming into Monday trading, Tesla stock is down about 16%, while the S&P and Nasdaq are off about 11% and 19%, respectively.