Tesla (TSLA) Stock Price Raised at Piper Sandler to $1,300 on Three Insights That are Overlooked

October 28, 2021 7:42 AM EDT
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Price: $1,089.40 -2.38%

Rating Summary:
    24 Buy, 21 Hold, 12 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 0 | Down: 2 | New: 5
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Piper Sandler analyst Alexander Potter reiterated an Overweight rating on Tesla (NASDAQ: TSLA) and raised the price target to $1,300.00 per share from the prior $1,200.00.

While other Street analysts used the Hertz deal as an excuse to further boost their price targets on the Tesla stock, Potter outlines three other insights that he thinks are getting overlooked.

  1. "Tesla Killer" EV launches from other brands have generally fallen flat: Potter argues that Tesla is already operating in the competitive market and other carmakers are still not able to match Tesla’s post-launch performance.
  2. Tesla's recent warranty performance has been strikingly good: Among other factors, like higher pricing, localized production, greater scale, and contribution from Model S Plaid, Potter outlines warranty expenses (only 1.6% of revenue) as another reason why gross margins were “exceptional” in Q3.
  3. Deferred revenue could help offset margin weakness: Recent filing shows Tesla is looking to recognize $1.39 billion in deferred revenue over the next year. Potter thinks “the impact on profitability could be substantial (potentially enough to offset the negative impact of opening new factories in Berlin and Austin).”

On a new price target, Potter commented:

“We have made a number of changes to our DCF model, resulting in an upward revision to our price target. First, we are now using a WACC of 11%, up from 10.7% previously, to reflect rising 10-year (risk-free) yields. This increase in WACC is offset by favorable revisions to our long-term outlook. We now expect Tesla's sales volume to max out around 11.5M units in 2030, which likely implies a #1 ranking in terms of worldwide market share. We also nudged our gross margin expectation higher, citing recent strength. We note that several potential upside levers are still excluded from our forecast, including revenue related to insurance, HVAC, "A.I.-as-a-service", and software in the Energy segment,” the analyst wrote in a client note.

Shares of Tesla closed at $1,037.86 yesterday.

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