Jefferies says now is the time to buy Tesla, which it says could surge another 35% this year
- Jefferies upgraded shares of Tesla to "buy" from "hold" Monday while lowering its price target to $650 from $800 - still implying a 35% upside from where shares traded at Friday's market close.
- Shares gained as much as 8% Monday.
- Tesla is the only auto original equipment manufacturer that is legacy free, engaged in a positive electric-vehicle sum-game, nearly doubling its market coverage with the Model Y, and leading the industry's technological transformation, wrote analyst Philippe Houchois.
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Tesla is looking like a good deal to Jefferies.
The firm on Monday upgraded shares of the automaker to "buy" from "hold" while lowering its price target to $650 from $800. That implies a 35% upside from where shares closed at $480 per share on Friday.
Jefferies views Tesla as the only automotive original equipment manufacturer that is legacy free, engaged in a positive electric-vehicle sum-game, doubling its market coverage with the Model Y, and leading the industry's technological transformation, analyst Philippe Houchois wrote in a note.
Shares of Tesla gained as much as 8% Monday.
The upgrade comes after Tesla's record rally at the beginning of the year was snapped by the coronavirus pandemic. While shares of the automaker are still up about 15% year-to-date through Friday's close, they have slipped more than 48% from their all-time high close of $917 per share in February.
Tesla hasn't been untouched by the coronavirus pandemic. It had to close its new Shanghai Gigafactory for two weeks at the beginning of the year. Its factories in Fremont, California, and Nevada are also currently closed as employees have tested positive for COVID-19, the illness caused by the virus.
Still, the company released better-than-expected first-quarter vehicle delivery numbers amid the crisis and despite "unfavorable seasonality" according to Jefferies. That should factor into a solid first quarter financial report - Jefferies expects revenue of $6.1 billion, an auto gross margin of 17%, and that the company will break even on an earnings-before-interest-and-taxes basis.
Although Jefferies cut its full-year 2020 estimates for Tesla because of the coronavirus outbreak, it expects that the company will grow 27%.
"Early feedback on the Model Y is strong," Houchois wrote. In addition, Tesla could benefit after the coronavirus outbreak subsides, according to the note.
"Post-crisis we would assume higher consumer support to energy efficient transport," wrote Houchois. "US gas prices drifting below $2 and the US loosening vehicle emissions rules create some headwinds to near term demand for EVs in the US, but a situation worse for peers."
There is much riding on Tesla's upcoming battery day, which was slated to take place in April. "Tesla has demonstrated a durable edge over competitors in energy density, management, and connectivity, with incumbents facing new challenges in catching up," according to the report. Houchois thinks Tesla could grow into a supplier for other OEMs, a market that could be worth $235 billion by 2030.
Jefferies reduced its price target to $650 because of revised estimates and "macro uncertainty," according to the note.
"Looking further out, we see Tesla's ability to attract capital as a strong positive as pressure on the industry's transformation accelerates," said Houchois.
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