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Shares of Tesla (TSLA -2.17%) jumped 7.8% on Wednesday, following analyst upgrades.
After shedding hundreds of millions of dollars in market value this year, Tesla’s stock is now presenting investors with a more favorable risk-to-reward opportunity. So says Citigroup analyst Itay Michaeli, who upgraded his rating on the electric vehicle (EV) maker’s shares from sell to neutral on Wednesday.
Michaeli noted that following the steep decline in its share price, Tesla’s stock is now trading for about 30 times his earnings projections for this year — a far more reasonable level, in his opinion.
Still, Michaeli warns that competition is intensifying in the EV arena. But he postulates that Tesla’s competitive position could strengthen if the economy falls into a prolonged recession, since a difficult economy would likely take a bigger toll on its smaller and less financially sound rivals.
All told, Michaeli boosted his share price forecast from $141.33 to $176, or roughly 4% lower than the stock’s closing price on Wednesday. He did, however, say that improvements in Tesla’s average vehicle selling price and gross margins would drive him to increase his valuation.
Morgan Stanley analyst Adam Jonas also thinks the sell-off in Tesla’s shares is overdone. Jonas expects Tesla to be a prime beneficiary of the EV-focused incentives in the Inflation Reduction Act. He also noted that it is the only automaker that his firm covers that already earns a profit from its EV sales.
For these reasons, Jonas is far more bullish than Michaeli on Tesla’s prospects. He has an overweight rating and a $330 price target on the stock.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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