Rebecca Cook/Reuters
- On Tuesday, Joseph Osha of JMP Securities lowered his Tesla price target to $840 from $1,060, a more than 20% cut.
- He previously held the highest Tesla price target on Wall Street.
- The lowered target comes amid the impact Osha sees Tesla facing in the coronavirus pandemic, which has shuttered multiple factories.
- Still, Osha maintained his outperform rating on the stock.
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Tesla's biggest bull just took a step back.
On Tuesday, Joseph Osha of JMP Securities lowered his price target on the automaker to $840 from $1,060, previously the highest on Wall Street. Osha cited the recent impact of COVID-19 on the company as the reason for the more than 20% target price cut.
"Obviously, much has changed for TSLA recently, and with that in mind we revise our model to reflect lower production and delivery activity for 2020," Osha wrote in the Tuesday note. "Our analysis of comps and the still- unclear path to recovery has, however, caused us to reduce our target multiples."
Osha arrived at his updated price target by lowering multiples including enterprise value to revenue, enterprise value to Ebitda, and cash flow for the company. Still, he reaffirmed his "outperform" rating on the Elon Musk-led automaker.
The firm has also lowered many of its 2020 estimates for Tesla to reflect the impact of the coronavirus pandemic, which shut down its new Shanghai Gigafactory for two weeks and has also closed its factories in Fremont, California and Nevada, where a worker recently tested positive for COVID-19.
Overall, Osha is modeling a 90,000 reduction in 2020 deliveries, bringing the yearly total to 433,000 units from 523,000, according to the report.
"The revisions are front-end loaded although we have lowered our Q3 and Q4 estimates slightly," Osha wrote. "We assume that TSLA will be allowed to restart production in early May, both in Fremont and Nevada, although we do not believe the company will move back to full output until later in the year."
JMP expects that Tesla's automotive sales gross margin will decline to 15.5% in the first quarter, from 19.9% at the end of 2019. While JMP forecasts gross margin will increase to 16.5% in the second quarter, the firm does not think it will reach last year's levels before 2021, according to the report.
Going forward, Osha will be watching how Tesla decides to resume production once the company is allowed to reopen.
"Sharply scaling output would likely end up causing TSLA to accumulate inventory, which carries risks, but on the other hand, higher output drives better cost absorption, and ultimately better margins if the product can be sold," Osha said.
So far, Osha assumes that Tesla will be able to recover when the economic environment improves, and has not changed his model for 2021, based on the assumption that COVID-19 will be contained to 2020. JMP will revisit that assumption as the year progresses, according to the note.
Tesla is up more than 20% year-to-date through Monday's close, although it's shed more than 45% from its all-time high close in February.
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