Barclays downgraded its rating for Tesla from a buy to a hold Wednesday, dousing the red-hot electric vehicle stock to its worst day in months.
KEY FACTS
In a Wednesday note to clients, Barclays analyst Dan Levy advised Tesla investors to “move to the sidelines,” explaining the stock’s 170% rally over the last six months is too rich for his liking.
Tesla’s nearly $300 billion in added market capitalization over the last month came due to surging valuations and not due to a material change in earnings expectations, Levy continued.
Shares of the firm led by mercurial CEO Elon Musk slid more than 5% to $259 in Wednesday trading, posting their largest daily loss since April 20, though they remain close to their highest price since last fall.
Tesla stock has enjoyed a variety of tailwinds, including possible new revenue streams from the widespread adoption of its car chargers and mass optimism about what the artificial intelligence boom may mean for big tech’s top and bottom lines.
Tesla’s “near-term fundamentals…have at best remained unchanged amid the run-up” in its share price, Levy added, setting a $260 price target for the stock, implying 5.3% downside from Tuesday’s close despite noting he remains bullish on the company long-term.
Relative to earnings, Tesla’s valuation is far higher than it was for most of the last year, though it’s far below what it was when it traded above $400 in 2021: Its stock price to expected earnings ratio is nearly three times as high as it was at beginning of this year, though it’s less than half of what it was a year ago.
CHIEF CRITIC
Wedbush analyst Dan Ives believes Tesla’s soaring valuation is justified, writing to clients last week Wall Street is finally “tapp[ing] into…Tesla’s sum-of-the-parts valuation,” factoring in its charging, autonomous driving and solar energy businesses.
WHAT TO WATCH FOR
Tesla is expected to report earnings on July 19. Consensus estimates project the company to deliver a record number of vehicles during this quarter but profits to slide to their lowest levels since the same period last year, according to FactSet.
FORBES VALUATION
Musk regained his title as world’s richest man amid Tesla’s recent rally. The 51-year-old holds a $237 billion fortune, according to Forbes, about $85 billion higher than the next richest American, Larry Ellison. Musk lost almost $5 billion Wednesday.
