When is a cut in Wall Street’s target price really an increase? After a stock split, of course.
Wednesday night, Wedbush analyst Dan Ives changed his target to
(ticker: TSLA) to $360 from $1,000. But why
In a three-for-one split on Wednesday, the nominal cut was actually an increase of $333.33, a third of Ives’ pre-split price target of $1,000.
Ives cited improved vehicle production in China as one of the reasons for raising the target. Tesla, along with the rest of the auto industry, faced production and supply chain issues related to Covid in the second quarter.
The US regulatory framework was another reason Ives is more optimistic. The US just passed the Inflation Reduction Act, which includes purchase tax credits for electric vehicles. Many Tesla models must qualify.
“This green wave is a major industry-wide trend that we expect over the next decade and represents the biggest transformation for the auto industry since the 1950s in our opinion,” Ives wrote in his Wednesday report.
Interestingly, Bloomberg, which aggregates analyst ratings and targets, targets Ives at $120 a share. The system appears to have updated all price targets by dividing them by three, including the revised number of Ives.
It’s just one of those things. The average analyst price target for Tesla shares is around $288 a share, according to Bloomberg. That’s down from about $294 a share, or a pre-divided number of about $884, but no one else appears to have materially adjusted their price target except Ives. The average target will move a bit as all split-related issues in the system are resolved.
Other analysts will update the price targets even if they don’t change their division-adjusted earnings estimates or fundamental views on Tesla’s stock. The reason is that analysts don’t like small changes.
Mizuho analyst Vijay Rakesh, for example, now has a price target of $391.67 for Tesla shares. The pre-split target was $1,175 per share. Analysts often do not include cents in target prices because this implies false precision. Nobody really tries to predict the stock price down to the last penny.
RBC analyst Joseph Spak is another example. His new Tesla price target is $367 per share. As of Wednesday, its target was $1,100 a share, or division-adjusted $366.67. Spak basically raised its price target by $1 on a pre-split basis. The reason seems to be nothing more than rounding.
Spak, Rakesh and Ives value Tesla shares at Buy. Overall, 53% of analysts covering the shares of the Buy shares rate. The average purchase valuation index for stocks in the
is around 58%.
Coming into Thursday’s trading, Tesla shares are down about 16% so far this year, while the S&P 500 and
fell by 13% and 21%, respectively.
Tesla shares rose about 1.8% in premarket trading. futures in
added about 0.3%.
Write to Al Root at firstname.lastname@example.org