Analysts raise targets on Tesla despite lowered earnings expectations. What is it?

Analysts are increasingly doubtful about automaker Tesla's earnings potential this year, but at the same time continue to raise the target price of its stock, Bloomberg writes. Tesla is now the only company in the "Magnificent Seven" that boasts such a controversial Wall Street position.

Wall Street's average forecast for Tesla's net income for 2026 fell 56% over the past 12 months - from $14 billion to $6.1 billion, Bloomberg calculated. At the same time, over the same period, analysts increased the target price of the company's shares by more than 20% - from $338 to $409.5. And on the stock exchange, the securities are now even more expensive than this target: trading on Tuesday, January 27, closed at $430.8.

"Tesla is really unique to the capital markets," DataTrek Research co-founder Nicholas Colas told Bloomberg. - It looks much more like a venture-funded startup than a public company. As long as the vision remains quite bold, the valuation is driven by it, not earnings or cash flow."

According to Colas, the divergent dynamics in the earnings forecast and target price are "highly atypical," because usually the increase in the target price goes hand in hand with an improvement in earnings forecasts, not the other way around.

The ratio of share price to projected annual profit (P/E - an indicator of the high cost of shares) at Tesla is now about 194: this is the highest estimate in the "Magnificent Seven", writes Bloomberg. For comparison, the closest companies in this group (Apple, Alphabet, Microsoft and Amazon) have a P/E in the range of 25-30, and the average for the "Eight" level is 29. Tesla stock is also the second most expensive stock in the S&P 500 index, behind only Warner Bros. Discovery.

"If Tesla shares were trading closer to the P/E levels of the Magnificent Seven, we might be talking about an attractive risk/return ratio," HSBC analyst Mike Tyndall wrote in a note earlier this month (quoted by Bloomberg). - But the other tech giants have higher margins and more free cash flow, yet are valued at a significant discount to Tesla."

The target share price has risen for all of the "Magnificent Seven" companies over the past year - but only Tesla's earnings forecasts have fallen at the same time, Bloomberg emphasizes.

Apparently, Tesla quotes are no longer reacting to the prospects of electric car sales: the main driver is the vision of the company's head Elon Musk to develop humanoid robots and unmanned cabs, according to Bloomberg. But, although these are promising areas, the company has not yet proved that it will be able to profit from them, the agency noted.

It is on these long-term themes that investors will focus on Wednesday, when Musk will address investors after the publication of the statements, Bloomberg believes. Weak business dynamics and falling car sales increase the importance of Musk's statements about the development of autonomous transportation and robotics, the agency believes.

"Delivery performance almost doesn't matter anymore," Piper Sandler analyst Alexander Potter wrote after Tesla missed fourth-quarter sales expectations. - Tesla's success in 2026 will now be determined by advances in AI and robotics." Potter maintains an Overweight rating for the automaker's stock and a $500 price target - that's about 15% above current levels. However, he warned, "Without new details [on robotaxis and Optimus robots], we fear investors will start paying attention again to the deteriorating short-term outlook."

Canaccord Genuity analyst George Gianarikas argues that "unique growth opportunities" in the areas of robotics, autonomy and energy storage justify the price. And according to JonesTrading chief market strategist Michael O'Rourke, it is because of Tesla's change in strategy that there could be a gap between earnings estimates and target prices. "Analysts are willing to value the company based on lines of business that are not yet commercialized," Bloomberg quotes him as saying. - In other words, they prefer to bet on Elon Musk rather than against him."

Analysts in general diverge in recommendations on Tesla shares, MarketWatch shows: 20 advise to buy, 18 - to keep in the portfolio, 12 recommend to sell securities.

This article was AI-translated and verified by a human editor