Wall Street price targets for
stock are creeping up after the Aug. 25 stock split. Analysts view the company as a little more valuable for, essentially, three reasons. The third one is, frankly, a little odd and seems to be another way stock splits boost stocks.
The first two reasons are easy to explain. First, China is doing better coming out of its second-quarter Covid lockdowns. And the Berlin factory is ramping production higher.
“A sharp rebound in China, following capacity expansion at its Shanghai gigafactory seems to be driving output at 20,000 units/week rate in August,” wrote Daiwa analyst Jairam Nathan in a Monday report.
That’s one of the reasons he increased his price target on
stock to $325 from $310. Nathan rates shares at Buy.
Another reason Nathan cited is rising production at Tesla’s new Berlin factory. More cars are coming out of that factory raises the chances thatTesla could beat third-quarter delivery estimates. Wall Street currently projects about 357,000 deliveries for the third quarter, up from about 255,000 in the second quarter.
Nathan, for his part, is at just under 350,000 units for the third quarter.
Tesla also let some Wall Street analysts into the Berlin plant recently and most were impressed by what they saw. New Street Research analyst Pierre Ferragu and UBS analyst Patrick Hummel wrote recently that new technology in the facility can help drive down costs and improve profit margins.
Ferragu and Hummel didn’t change their stock price targets after the split or the Berlin trip, though. Barron’s, however, has found at least seven Tesla price target changes related to the three-for-one stock split completed on Aug. 25.
The price target changes due to the splits had an upward bias, adding somewhere between $4 billion and $40 billion to the value of Tesla’s market value for the split alone. That’s as much as 5% of Tesla’s current market capitalization.
That seems like a big bump, but analysts seem to prefer rounded numbers. A $1,000 pre-split target, for instance, became $333.33 after the split. Analysts don’t typically predict prices that precisely, and it appears $340 or $350 are just more attractive to the Street than $333.
Stock splits can help stocks. Investors tend to believe a split signals positive things for a company. No one splits a stock they expect to go down. But rounding up price targets after a split, of course, isn’t really an investible or tradable move. It’s more of a Wall Street curiosity. Analysts prefer rounding, and they are biased to upward price-target movement. The latter issue makes sense. Stocks rise over time.
Tesla stock is down about 7% since Aug. 24, the day before the split. The
are off about 4% over the same span.
Write to Al Root at email@example.com