BofA Raises Tesla TSLA Price Target To $550 From $350 “Tesla Stock Is Driven By Growth Afforded By Valuation”

by Eva Fox September 02, 2020

BofA Raises Tesla TSLA Price Target To $550 From $350 “Tesla Stock Is Driven By Growth Afforded By Valuation”

The Bank of America Corporation (BofA) raises Tesla (NASDAQ: TSLA) price target to $550 from $350.

Yesterday, Tesla announced that it has entered into an equity distribution agreement to sell up to $5bn of common stock in the future through an “at the market” offering program, which could occur as block trades, open market transactions, or other market offerings. This follows a near 500% run up in the stock this year, as well as a 5:1 stock split, effective August 31.

BofA writes in its note to investors: "As a reminder, we had ungraded TSLA stack ta Neutral predicated on the notion that the company has unfettered access to low-cost capital Which remains a key advantage that may (and should) be leveraged to accelerate growth over our forecast period. In our view, yesterday's announcement was evidence of our thesis that TSLA will utilize its stock to raise capital through low-cost equity offerings in order to accelerate aggressive capacity buildout plans globally and drive units/revenue substantially higher, further cementing its status as the dominant EV automaker."

With the proposed equity offering, BofA raising its PO for TSLA from $350 to $550, since the company moved forward its siding scale of valuation based on the theoretical growth opportunity afforded to TSLA, which is now consistent with 13.6x EV/Sales (prior 8.5x ) and 87x EV / EBITDA (prior 55x) on their 2021-2022 estimates.

BofA's framework follows five key steps:

  1. What the current stock price affords to TSLA in incremental pants and units;
  2. What the incremental units translates into in incremental revenue/profits;
  3. What the incremental revenue profits translates into in terms of EV / Sales, EV / EBITDA, and P / E multiples on pro-forma 2025,
  4. A sight premium to these multiples is ascribed for TSLA's track record of growth, consistent capital raises, and overall investor hype;
  5. Assuming 2 negligible discount rate, these multiples are stacked up against TSLA's comp set and historical multiples.

H/T @davidtayar5

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero share of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.

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