Piper Sandler’s analyst Alex Potter has raised his Tesla share price target from $ 480 per share to $ 515 per share while maintaining an overweight rating on the stock.
“We are raising our price target and repeating our overweight rating after analyzing two poorly understood aspects of Tesla’s business. These are: 1) the energy segment and 2) Elon Musk’s compensation,” Potter writes.
Potter calls Tesla Energy “the topic everyone is trying to avoid”
“We now expect Tesla Energy to eventually exceed $ 200 billion a year in revenue, with TSLA controlling over 1/3 of the desktop battery market. We expect significantly higher demand for these products, especially in the end. of the 2020s and 2030s, as renewable energy grows towards 40% of electricity production, says Potter.
As for Musk’s compensation plan, Potter notes the significant drag it has on GAAP revenues, especially during the second half of 2020, as performance milestones are likely to be achieved.
“[Whenever] performance-based milestones are crossed, triggering a new share of vested options, TSLA shareholders must endure sudden upsets in stock-based business (SBC). This item will be particularly burdensome in the coming quarters, and Tesla is expected to book a share-based payment of $ 1 billion + during 2H20. SBC is a non-cash expense, but it affects GAAP revenue, which is the preferred measure of inclusion in S&P500. “
More information on how SBC affects Tesla’s profitability can be found here.
Although the effects are likely to be significant in the coming quarters, Potter points out that the maximum compensation from the plan has been determined since the plan was drawn up.
More importantly, the total cost of Musk’s plan is known (~ $ 2.3 billion), so the main issue is timing of these expenses. “
In May, Potter joined the Tesla Daily to discuss TSLA shares, Tesla’s progress in China, institutional investors, short dissertations, Tesla Solar / Energy and more. That conversation is in the video below.
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Disclosure: Rob Maurer is a long TSLA stock and derivative.