- Despite the gravity-defying Tesla surge so far in 2020, the action has more room to run, according to a Monday note from Piper Sandler.
- Sandler raised its Tesla price target from $ 939 to a high of $ 2,322, implying a potential upside of 55% since Monday’s close.
- The company employed a 20-year discounted cash flow model to generate the target price, and credited Tesla with the advantage of being the first to move and the potential of the software as reasons to keep the stock going for a long time.
- In response to the note, Tesla CEO Elon Musk tweeted, “Wow.”
- Tesla has seen an increase in business activity as investors speculate that the electric car company may be about to be eligible for inclusion in the S&P 500 index.
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The Tesla gravity-defying rally so far in 2020 will continue, according to a Piper Sandler note released Monday.
The company more than doubled its previous price target from $ 939 to a high of $ 2,322 from Wall Street, implying a 55% rise since Monday’s close.
Sandler used a 20-year discounted cash flow valuation model to generate his price target, and attributed the increase in his price target to “reflect faster-than-expected stock earnings,” according to the note. The firm also pointed to the Tesla software opportunity as a reason to stay long on the stock market.
So should investors call the register and make a profit on Tesla after it rose as much as 328% so far this year? According to Sandler, “We emphatically believe that the answer is NO.”
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“It is difficult to see how competitors can catch up,” Sandler said, adding that Tesla’s build capacity is its biggest constraint to further sharing profits. The firm said Tesla could still deliver more than 500,000 cars in 2020, which would be “impressive” given the temporary factory closings caused by the COVID-19 pandemic.
And Tesla could deliver nearly 4 million cars in 2025, capturing almost 10% of the market share in the United States, Piper Sandler said.
More important to his target price increase, Piper said he believes Tesla’s software, particularly the full standalone plug-in, could allow Tesla to sell cars at “or even below cost, while still achieving higher operating margins” for the 2030s.
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Risks to Piper’s thesis include delays in production, failure to meet customer expectations, defects and product recalls, interruptions in the supply chain, and slow adoption of electric cars.
In response to the note, Elon Musk tweeted on Monday night, “Wow.”
If Tesla’s shares continue to rise, Musk could receive a payment of $ 2.4 billion. Tesla shares have risen due to stronger-than-expected second-quarter delivery data and speculation that the company may be eligible for inclusion in the S&P 500 index once it reports earnings later this month.
Tesla fell as much as 4% to $ 1,431 in trading on Tuesday.
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