Following Tesla's stock surge after the presidential election, Jefferies analyst Philippe Houchois recommends the company raise equity capital. The analyst believes that Tesla should capitalize on the current market environment, which has seen its market cap rise above $1 trillion.
Houchois notes that Tesla's stock has become a proxy for Elon Musk's broader interests, with expectations of deregulation fueling the rally. He argues that while deregulation could boost Tesla's growth, it would also increase capital requirements.
"In recent days, Tesla shares have looked like a proxy for Elon Musk’s wider interests on expectations of de-regulation driving growth across separate businesses."
The analyst also points to the reliance on ZEV credits as a "less secure source of funds" and suggests that Tesla's current net cash position includes significant capital raised in previous years.
Given the current market conditions, Houchois believes an equity raise is a strategic move:
"Tesla should take advantage of shares re-rating 30% back >$1trn since Trump’s election to raise equity."
He further suggests that raising equity "at market," similar to 2020, could give Tesla a competitive edge while maintaining a low-risk balance sheet.
Despite the positive outlook for fundraising, Jefferies has raised its price target for Tesla to $300, slightly below the current trading price of $327. This increase is based on higher earnings and growth estimates, and a lower discount rate.
"We lift estimates on a mix of software, ZEV and Storage more than auto. PT raised to $300 on higher earnings and growth, and lower discount rate."
This recommendation aligns with recent optimistic outlooks from Bank of America and Wedbush, both citing the potential positive impact of the new administration on Tesla's autonomous vehicle and AI ambitions.
This is not investment advice. The author has no position in any of the stocks mentioned.
