New Street Research technology analyst and longtime Tesla bull Pierre Ferragu upgraded shares of the electric vehicle pioneer Wednesday evening.
His rating goes to the equivalent of Buy from Hold. His price target goes to a Street high of $578 a share, up from $400.
Ferragu—who also covers tech stocks, including Intel (ticker: INTC), Apple (AAPL), and Uber Technologies (UBER)—launched coverage of Tesla (TSLA) in May 2018. His price target back then was $106 a share. Tesla stock was less than $60. The average analyst price target was about $63 a share.
Back then, Ferragu wrote: “Tesla’s forced march toward electrification is reaching a tipping point: cost parity is around the corner, barriers to adoption are pushed away, drivers are enthusiastic, and the industry is betting ‘all-in’ on electric.” Those were some prescient observations.
Tesla achieved profitability while dropping the price of its vehicles and introducing a sedan—the Model 3—with a base price of about $35,000. All while traditional auto makers announced plans to launch myriad electric vehicle models.
Ferragu went to a Hold rating in 2020 after the stock ran up. Tesla stock has had an incredible 2020, up about 400%, crushing the returns of the S&P 500 and Dow Jones Industrial Average.
Today, Ferragu wrote: “We have done a ton of work on Tesla in recent weeks, to the point that we felt the need to re-initiate on the name.” He looked at everything from technology, competition, costs, margins, and energy storage.
He doesn’t see credible new competition on the horizon, which will help Tesla maintain growth and leading profit margins. “While other [auto makers] cannot produce EVs at comparable prices to equivalent ICE s, Tesla sells Model 3 at ~15% lower price relative to premium sedan ICEs.” (ICE stands for internal combustion engine.)
A Tesla Model 3 starts at $35,000. A conventionally powered Lexus IS, Jaguar XE, and BMW 330i start at about $40,000.
Add it up and Ferragu sees Tesla generating more than $100 billion in sales and $16 in earnings per share by 2026. “ Amazon has traded in the 50 [to] 100 [times] earnings range for over a decade, and we expect Tesla to follow suit.” At the midpoint of that range, with that level of earnings, Tesla could trade for $1,200 a share by the end of 2025. (Stocks trade on forward earnings.) “At this price, the stock would still deliver 20% [average annual] return.”
It’s a bold call. Ferragu’s new target price values Tesla stock at about $540 billion.
Not everyone agrees. With the upgrade, now eight out of 37 analysts rate shares Buy. The average Buy-rating ratio for stocks in the Dow is about 58%. The average analyst price target for Tesla is about $312, notably below the $425 level where the stock closed Wednesday.
Before the upgrade, the highest target price for Tesla stock was from Piper Sandler analyst Alex Potter. He rates shares Buy and has a $515 price target. Tesla stock’s all-time high of $502.40 was set on Sept. 1.
Tesla stock is up 1.2% at 430.46 in premarket trading.
Write to Al Root at allen.root@dowjones.com
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A Tesla Bull Makes a Bold Call: The Stock Can Triple in Price - Barron's
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