Wedbush Maintains 'Neutral' Rating on Tesla (TSLA) Ahead of S&P 500 Debut

December 18, 2020 8:12 AM EST
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Price: $589.72 +3.15%

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    21 Buy, 21 Hold, 11 Sell

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Wedbush analyst Daniel Ives reiterated a “Neutral” rating on Tesla (NASDAQ: TSLA) ahead of the company’s much-anticipated S&P 500 debut after the close Friday. As of Monday, Tesla will represent around 1% of the S&P 500's market capitalization.

“After a head fake in early September, Musk & Co. finally getting the S&P 500 inclusion this time around is clear validation of the company's profitability trajectory looking ahead as Tesla leaves the red ink behind. Because of its sheer size, Tesla's inclusion into the index should translate to indexers buying roughly $80 billion worth of the company's stock making this by a wide margin the largest rebalancing event in S&P's history,” Ives, who has a price target of $560.00 per share on TSLA, wrote in a note sent to clients today.

“We believe the sustained profitability trajectory as evidenced in the September quarter was the final straw that got Musk & Co. into the S&P 500 this time around despite all the noise around tax credit boosts on the Street. Clearly this is a key positive for shares and ultimately removes another question mark around the Tesla story going forward. With continued execution on the global EV story, we believe Tesla has a golden opportunity to capitalize on this transformational EV market opportunity for the next decade with China front and center.

According to Virtu ITG Canada’s head of index research, Ivan Cajic, fund managers are likely to adjust their portfolios starting from the next week.

“Index managers will need to sell a large position across the other S&P 500 constituents in order to fund the addition of TSLA, which could lead to substantial impact across the entire index,” Virtu ITG Canada’s head of index research, Ivan Cajic, said in a note.

Yesterday, S&P Global upgraded Tesla’s debt to BB from prior BB-, citing healthy treasure chest/capital structure post its recent $5 billion equity raise.

“In addition, the company continues to improve operating execution, become more efficient in production, and make strides in its global expansion,” it is said in the statement.

“With more cash on its balance sheet than debt, the company appears easily able to fund its global expansion in China and Europe, and broaden its U.S. manufacturing base by opening a facility in Austin, Texas.”

Tesla last traded up 0.9% to $661.64.

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