Tesla 'No Longer Overly Cheap' But Remains 'Compelling,' Says Analyst After Stock's 5% Surge

Tesla, Inc. TSLA had a solid trading session on Wednesday, surging over 5% amid a broader market slump triggered by a decline in bond yields. 

Tesla investor and Future Fund Managing Partner, Gary Black, shared his perspective on the stock’s resurgence.

The Tesla Thesis: Black noted that Tesla’s rally, along with the Nasdaq 100’s 1.4% climb, was a reaction to the 6.7 basis points pullback in the yield of the 10-year Treasury note, which dropped to 4.73% on Wednesday. 

He added that high P/E (price-to-earnings) stocks with longer durations benefited the most from falling bond yields.

Furthermore, Black suggested that Tesla investors might be anticipating that the company won’t quickly reduce configurator prices in the future. The recent launch of a “value-for-money” rear-wheel drive Model Y with just 260 miles range and a 0-60 miles per hour acceleration in 6.6 seconds for $43,990 suggests the company may leave the Long Range, all-wheel drive Model Y prices unchanged, removing a major risk, he added.

Black also emphasized several upcoming catalysts for Tesla’s stock, including the Cybertruck launch, Model 3 refresh, and a licensing deal for full self-driving capabilities.

See Also: Everything You Need To Know About Tesla Stock

Is Tesla A Buy? Regarding Tesla’s valuation, Black noted that the company’s P/E multiple is currently 55 times the estimated earnings per share for 2024. “TSLA is no longer overly cheap, but it remains compelling vs our 2023-2028 ests of +37% vol and EPS growth CGR,” the analyst said.

In terms of automotive gross margin, excluding regulatory credits, Black pointed out that the consensus expects it to bottom at 18% in the third quarter, but he anticipates an increase to 19.2% in the fourth quarter and 20.5% in 2024, especially after the Cybertruck launch.

Lastly, Black projected higher fourth-quarter and 2024 volume estimates than the consensus, suggesting over 500,000 units for the fourth quarter.

He drew parallels to the boost in volume that Tesla experienced following the Model Y launch, with volume growth accelerating from 36% in 2020 to 87% in 2021, attributing this phenomenon to the Model 3 refresh and Cybertruck generating increased interest in all Tesla models.

Tesla ended Wednesday’s session up 5.93% at $261.16, according to Benzinga Pro data.

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