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Morgan Stanley analyst Adam Jonas has upgraded Tesla stock to the equivalent of Buy from Hold and its price target at $ 540 from $ 360. He sees a lot of value in Tesla’s non-automotive businesses.
Greg Baker / AFP via Getty Images
Tesla
stock found an update in ratings just days after the announcement it will join
S&P 500 Index
in late December. The update also comes after the stock has risen 530% over the past year. It’s a bold call, but Morgan Stanley analyst Adam Jonas believes Tesla is turning into more than just an automobile manufacturer.
Jonas raised his Tesla rating (ticker: TSLA) to the equivalent of Buy from Hold and his price target to $ 540 from $ 360. Additionally, his best-case scenario for stock is $ 1,068 per share, up more than 100% compared to recent levels.
“Tesla is on the verge of a deep [business] model change, “wrote Jonas in a Wednesday research report.” For the first time, we are adding software [and] linked vehicle services revenue to our earnings forecast and base case assessment. ”
Tesla’s network services business, for Jonas, includes things like full self-driving software, sold separately, along with infotainment packages and vehicle performance updates. Eventually, as Tesla’s installed base of vehicles grows, Jonas sees that he contributes up to 20% of Ebitda, short for earnings before interest, taxes, depreciation and amortization. It rates the asset, in its base case, at around $ 160 per share, accounting for the majority of its target price increase on Wednesday.
It’s a nice reversal for Jonas. It priced Tesla stock at Sell with a price target of $ 120 in June.
Now he writes: “Evaluating Tesla on auto sales alone ignores the multiple activities incorporated within the company.” Tesla also sells insurance, plans to start a ride-sharing business, and also has solar and stationary energy storage businesses. Tesla also plans to produce batteries for electric vehicles.
It is a new paradigm for evaluating car manufacturers. Traditional investors in
General Motors (GM)
or
Ford Motor
(F) they are used to valuing self-financing business, but have difficulty valuing other assets. GM, for example, has an autonomous driving division called Cruise. It is also negotiating a deal with
Nikola
(NKLA) to supply batteries and fuel cell parts. However, GM is worth less than 8 times its estimated earnings for 2021.
Tesla stock is trading at around 117 times its estimated earnings for 2021. Tesla, of course, is growing earnings rapidly.
At his best guess, Jonas values Tesla stock 15 times its estimated sales for 2023. This equates to a value of approximately $ 462 per share for the automotive business and $ 318 per share for the related services business. The software is worth about 70% of car production, according to Jonas.
The rest of the value comes from insurance, battery supply, ride sharing and stationary power, as well as all other activities incorporated within the company.
Tesla shares were up 2.7% in trading on Wednesday. The S&P 500 e
Dow Jones Industrial Average,
for comparison, they are respectively up 0.2% and 0.5%.
Tesla stock is trying to break out of a recent range that has predominated since early September. The S&P 500 indexing coupled with the analyst update could help the stock retest recent highs of around $ 500.
Write to Al Root at [email protected]
.
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