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Bank of America raised its price target for Tesla (NASDAQ: TSLA) to $900 from $500, highlighting that rising share prices and raising new capital further cement the company's status as the dominant electric vehicle manufacturer.
In a note to customers, Bank of America analysts indicated that Tesla was able to meet its Q4 2020 delivery targets. In addition, in December, the company announced an equity distribution agreement to sell up to $5bn of common stock in the future through an “at the market” offering program, following a similar offer in September. The proceeds from the sale will be used by Tesla to accelerate plans to rapidly expand capacity worldwide and drive units/revenue substantially higher, further cementing the company's status as the dominant electric vehicle manufacturer.
Bank of America is increasing its PT or TSLA from $500 to $900 as they are sliding a scale of valuation based on the theoretical growth opportunity provided by Tesla, which is now consistent with 23x EV/Sales (prior 12.5x) and 118x EV/EBITDA (prior 71x) on 2021-2022 firm's estimates.
The firm's analysts have identified the structure, which includes five key steps:
- What the current stock price affords to TSLA in incremental plants and units;
- What the incremental units translates into in incremental revenue/profits;
- What the incremental revenue/profits translates into in terms of EV/Sales, EV/EBITDA, and P/E multiples on pro-forma 2025;
- A slight premium to these multiples is ascribed for TSLA's track record of growth, consistent capital raises, and overall investor hype;
- Assuming a negligible discount rate, these multiples are stacked up against TSLA's comp set and historical multiples.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.