Tesla (TSLA) price target revised to $515 by Canaccord Genuity Group Inc.

Tesla was up nearly three percent today after Canaccord raised its price target on the stock to $515 a share. It was at $375 before the upgrade. That’s the highest target now compared to all financial firms.

Stock price of TSLA as of January 4, 2020

So where do they get this price target that’s quite so clearly ahead of the rest of the pack?

According to Canaccord, their price target is 27 times their EPS which is actually a discount to the growth. But besides that this is really a momentum driven stock and if we look at the momentum coming into this year, we see several positive factors that we didn’t have last year. When we look at what Tesla is going to be introducing, it all adds up.

The fact that many of the bearish signals are not there this year, that’s really what gives the firm their bullish stance on a very positive secular trend as a backdrop too.

So, momentum is one thing, but of course there are a number of fundamentals here that will drive Tesla forward. There are big expectations for Tesla in China.

So, there’s a Gigafactory that just opened in China, and it just started manufacturing and delivering a thousand cars per week. The Model 3 is subsidized over in China, so that’s one major positive point.

We’re actually moving from a US-centric to more of a global perspective. We’ve got the Model Y that will be released soon, we’ve got the semi-truck that will be released domestically, and we’ve got China that’s only going to be increasing sales for Tesla. So combination of local production with incentives domestically in China is going to drive the stock price to the upside.

As we can see they’re not massively upgrading their earnings estimates, they seem to be expecting that there could be positive news flow that could keep the momentum going. But are they essentially saying that this is not based on fundamentals?

According to Canaccord, they were at a hold coming in to 2018, they upgraded in February at $305, which was largely driven by macro and it was a roller coaster ride. But if you look at the dispersion, you’ve got some analysts at losing $3 of earnings and Canaccord at $14 in earnings for this year. This is such a massive dispersion. If we start getting closer to the number they crunched, this thing has a lot of upside potential.

There were a lot of headlines made over the Cybertruck of course, but that’s not the only new introduction, the Model Y is going to be release soon and it has a shared platform which is much more so than some of the other models. Roughly 75% of the components it shares with Model 3 versus the Model S and X which share less than 25%. So the cost is going to be much better from an investment standpoint for the Model Y than some of the previous models that have come out of Tesla.

Tesla Model 3

The big bear thesis for last year was their ability to service their debt and the profitability or lack thereof in the beginning of the year. They pushed through that and what we’ve seen recently is a massive upside to consensus with respect to profitability. A large part of that is attributable to the Model 3. When we look at the combination of the Model 3, the China, combined with the Y shared platform, that should result in greater margins. That’s going to put a lot of the bears or that’s going to put a lot of the concerns at ease.

Contact the author: willismcguire@wheelsjoint.com