Tesla Stock Gets an Upgrade to Hold—and a Price Target Cut

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Tesla cars at a charging station in Yermo, Calif.

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Chris Delmas / AFP via Getty Images

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Tesla stock caught an upgrade. Just not the kind that excites investors. Still, the company lost a bear, and that might yield benefits for shareholders down the road.

Tuesday, Tudor Pickering analyst Matt Portillo upgraded Tesla stock (ticker: TSLA) ti Hold from Sell. He lowered his price target, however, to $723 a share from $824.

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Portillo noted the hefty decline in Tesla stock recently as well as better-than-expected gross profit margins as reasons for the upgrade.

Tesla’s reported first-quarter gross profit margin came in at about 29%, several percentage points higher than analysts were projecting. That helped drive a big bottom line “beat.” Tesla reported $3.22 in adjusted earnings per share for the quarter. Wall Street was looking for about $2.30 a share.

Tesla shares were up 2.5%, at $743, in recent trading, while the S&P 500 and Nasdaq Composite were up about 1.2% and 1.5%, respectively.

The upgrade to Hold doesn’t change the Buy-rating ratio for Tesla stock. It’s at 50%. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.

It does, of course, change the average Sell-rating ratio, which doesn’t get as much attention from investors. Stocks are either Buys or they aren’t. Sells might indicate a short selling opportunity, but most investors don’t sell stocks short. (In a short sale, an investor borrows stock they don’t own and sells it. If the price declines they can buy it back at a lower price and pocket the difference.)

But the Sell-rating ratio does indicate a level of overall bearishness, or a level of controversy, in a stock.

Twenty-five percent of the analysts now covering Tesla rate shares Sell. That is far higher than average. The average Sell-rating ratio for the Russell 3000 Index is roughly 6%.

That’s one way to measure Wall Street controversy. It also shows up in other ways. The spread between the top and bottom Tesla price targets is more than $1,500. That’s more than 200% of the current stock price. The bull-bear spread for Apple (APPL) is about one-third that level, at about $94, or roughly 63% of the current stock price.

Apple is more popular among analysts, with 75% of those covering it rating shares Buy. The Sell-rating ratio for Apple stock is 2%. Only one analyst rates shares Sell.

An upgrade to hold might not excite Tesla bulls, but a declining Sell-rating ratio could signal less volatility down the road. That is something bulls would welcome as well.

Tesla’s annualized volatility is about 68%. Roughly speaking, that’s how much fluctuation an investor can expect in Tesla stock over 12 months. Apple’s annualized volatility is half that, at about 34%.

Write to Al Root at [email protected]


Credit: www.marketwatch.com /

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