Tesla Analyst Upgrades The EV Maker's Stock And Ups Price Target By 20%: Here's Why

Tesla, Inc. TSLA shares, which have picked up momentum in recent sessions, are gaining further ground Monday.

The Tesla Analyst: Jefferies analyst Philippe Houchois upgraded Tesla shares from Hold to Buy and also increased the price target from $700 to $850.

The Tesla Thesis: Tesla, which has been capacity-constrained for much of this year, is likely to benefit in 2022 from rising global BEV demand, more battery and assembly capacity and a broader and mix-accretive model lineup, Houchois said in a note.

The company produced its "strongest and cleanest" set of numbers in the second quarter, ahead of a step up in product mix, the analyst said.

Premised on higher gross margin and continued leverage of operating expenditure, leading to an acceleration of return on invested capital and free cash flow support, the analyst raised his 2021-2022 estimates for Tesla by 17%.

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The correction seen in Tesla's shares in the year-to-date period, according to the analyst, is due to reining in excess market expectations for the timing of FSD and storage growth. Autonomy remains a challenge for all.

Storage growth will accelerate as battery capacity increases, including the 4680 format in pre-production testing, Houchois said.

Even as legacy OEMs progress on EV powertrain and line-ups, Tesla continues to build or maintain multiple edges, notably in product complexity, inventories, direct selling and initiatives in selling subscription services, the analyst noted.

"Against that, governance remains a challenge from Bitcoin to Elon Musk's reluctance to be CEO but give up control," Houchois said in the note.

The price target revision is premised on higher profitability and accelerated growth.

Tesla shares currently trade on 9 times revenue and 62 times EBIT, a level disconnected with auto multiples, Jefferies said. The valuation, however, is more consistent with net growth, lack of legacy issues and wider addressable markets including energy generation/storage.

TSLA Price Action: In premarket trading Monday, Tesla shares were up 1.53% at $709.83.

See also: How to Invest in Tesla Stock