UBS analyst Joseph Spak has raised his Tesla (NASDAQ:TSLA) stock price target to $197 from $147. The new price target is based on a P/E multiple of 55x for the next twelve months, up from 45x.
At the same time, he also lowered his rating to “sell” from “neutral,” citing valuation concerns. While Tesla has always commanded a premium valuation in light of future growth opportunities, Spak believes that the current valuation is stretched.
“After going through the different businesses we can more substantially value, at current levels, we are still left with a >$500bn ‘stub’ for that future growth. Even if we give that ‘stub’ a 5-year time horizon, that implies a 5-year future value of $1T,” wrote the analyst.
Spak used sum-of-the-parts (SOTP) analysis to value TSLA stock. Let’s get into the details.
TSLA Stock: UBS Raises Price Target to $197, Lowers Rating to “Sell”
Spak’s valuation analysis shows that the market has historically valued Tesla’s core auto business at between $60 and $90 a share, while his SOTP model has a value at $57. The valuation of Tesla’s other businesses tallies in at a two-year average of about $140 per share, although it’s currently approaching $175 per share.
Spak estimates Tesla’s energy business to contribute $18 per share while full-self-driving and robotaxi are estimated to contribute $18 per share as well. Combined, the core auto business, energy and FSD/robotaxi business, or what Spak calls the “more easily identifiable value,” is worth $93 per share.
Still, the analyst notes that Tesla’s stock price disconnecting from its fundamental value has occurred in the past and can persist for meaningful amounts of time. Tesla will also report its earnings on Tuesday, July 23, creating a major catalyst for the company.
Tesla’s Robotaxi Gamble
Investors have also been skeptical about Tesla’s Robotaxi event, especially considering that it was pushed to October from the initial Aug. 8 date. Spak believes that TSLA could see a boost if CEO Elon Musk surpasses expectations at the event.
“More meaningful than robo-taxi is showing the new vehicle, as it could change 25/26F numbers. But consensus already considers higher units, and we believe the vehicle could pressure auto margins,” wrote Spak.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
