Tesla's setting up for a strong 2020 that could send the stock to an all time high, according to Jefferies

  • Jefferies upgraded its price target for Tesla to $US400 from $US300, reflecting expectations of higher earnings and an improved balance sheet, according to a Monday note from analyst Philippe Houchois.
  • Shares of Tesla gained as much as 3.51% Monday.
  • Jefferies raised its 2020 EBIT estimate for Tesla by 24%, saying stabilizing performance in 2019 is setting the company up for growth in 2020.
  • Watch Tesla trade live on Markets Insider.

Tesla’s setting the foundation for a return to growth in 2020, according to Philippe Houchois, an analyst at Jefferies.

Jefferies raised its price target for the electric-car company to $US400 from $US300 Monday and reaffirmed its “buy” rating.

That’s a 15% increase from where Tesla currently trades around $US345 per share, and is also about 4% higher than Tesla’ all time high price of $US383.45 on June 23, 2017. Only Pierre Ferragu at New Street Research has a higher target price for the automaker at $US530.

Shares were up as much as 3.51% in early trading before slipping slightly to a 2% plus gain.

Jefferies increased its price target because it expects higher earnings and an improved balance sheet from the company going forward. It raised its 2020 EBIT guidance for Tesla 24% to $US1.6 billion after the company’s third quarter earnings showed a “clear trend of cost performance,” according to a Monday note.

As Tesla has produced more affordable versions of its cars, it’s shown that it can maintain gross margins -the difference between how much cars sell for and what they cost to make. In the third quarter, the gross margin excluding credit “was above the 20% level from where we think Tesla starts building profitability,” he wrote. Jefferies has forecast gross margin to be 23% by 2021, up from 18.8% in 2018.

The pricing of Model 3’s made in China, plus deferred revenue recognition from Tesla’s Autopilot feature, suggest that average selling prices have stopped falling for now, and will pick back up again when the Model Y begins production in 2020, according to Houchois.

Jefferies also boosted its full-year 2019 EBIT estimate by $US83 million, and expects that capex for the fourth quarter will be between $US550 million and $US600 million, putting capex for the full year below $US1.5 billion.

Improved performance aside, Jefferies doesn’t think that Tesla will have only smooth sailing from now on, according to the note. The fourth quarter could show weak delivery numbers, the company’s low levels of capex are a concern, and there are “risks inherent in ramping up the new plant in China,” Houchois wrote.

Still, an improved 2019 “sets a better foundation for a return to growth in 2020 revenue and earnings,” Houchois wrote.

The automaker has a consensus price target of $US273.28 with 11 “buy” ratings, nine “hold” ratings, and 16 “sell” ratings, according to Bloomberg data.

Tesla is up 4% year to date.

TeslaMarkets Insider

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.