Tesla, Inc. stock has been going through a lean phase with the green days now becoming few and between between. A Tesla bull said the task is cut out if it were to arrest the slide in its stock.
The Tesla Analyst: Morgan Stanley analyst Adam Jonas has an Overweight rating and a $380 price target for the stock, which suggests a roughly 74% upside from current levels. Tesla closed Monday’s session down 0.31% at $219.27, according to Zenger News Pro data.
The Tesla Thesis: Tesla stock is trading at roughly 55 times the estimated 2024 earnings and the recent decline in the stock price has hurt investor sentiment, said Jonas in a note published late Monday. The analyst also noted that a number of suppliers having exposure to Tesla significantly reduced fourth-quarter and early-2024 production outlook.
4-Point Plan: To halt the slide in Tesla stock and reestablish leadership, Jonas recommends that the company should pursue one or more of the following:
- Avoiding earnings disappointment; The analyst noted that the consensus earnings per share estimate for 2024 for Tesla has dropped from $7.30 a year ago to $3.94 currently.
- Expanding models beyond the existing Model S, X, 3, and Y lineups; The Cybertruck bar has been lowered and it could be relatively insignificant within the scope of Tesla’s future portfolio, Jonas said. The analyst, however, did not rule out the impact it can have on sentiment following the launch and ramp-up.
- Expanding the total addressable market incrementally toward more capital-light businesses including licensing, software, content, etc that have relevance beyond the auto market
- Idiosyncratic narrative change; In order to defend the current multiple, Tesla must show a credible link to the AI theme through tangible products that drive improved consumer experiences in autos, Jonas said.
Where’s Tesla Headed: Jonas said Tesla stock’s trajectory will depend on whether the company is able to achieve one or more of of his four recommendations.
“We believe investors will show a willingness to believe in the long-term TAM and profit potential of the company but are unlikely to take further downward revisions in earnings and free cash flow forecasts without cramming down the multiple,” he said.
For the market to begin paying a higher price for Tesla’s growth, the company must demonstrate earnings resiliency and growth once again, he added.
“While Tesla may have achieved its ‘iPhone moment,’ it has yet to reach the ‘App Store moment,’ which is critical to unlocking high-margin, high-multiple, highly recurring revenue,” the analyst said.
Jonas estimates Tesla’s on-the-road-fleet will reach 34 million units by 2030, 69 million units by 2035, and 117 million units by 2040, bringing in recurring revenue of $55 billion, $157 billion, and $322 billion, respectively for 2030, 2035 and 2040.
Produced in association with Benzinga
