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Why Tesla Stock Jumped on Wednesday

By Daniel Sparks – Aug 26, 2020 at 11:34AM

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Are shares headed to $2,500 (or $500 when adjusted for the upcoming stock split)?

What happened

Shares of Tesla (TSLA -0.34%) jumped on Wednesday, rising about 4.5% as of 10:40 a.m. EDT.

Bullishness for the electric-car maker's shares was likely driven primarily by an analyst's decision to significantly increase his 12-month price target for the growth stock.

A chart showing a stock price rising

Image source: Getty Images.

So what

Jefferies analyst Philippe Houchois boosted his price target for Tesla stock to $2,500, up from a previous target of $1,200. The analyst also reiterated a buy rating. 

Shares of Tesla have soared recently, rising 900% over the past year. The big move has left many analysts' price targets underwater, prompting them to revisit their valuation and expectations. In his updated view for Tesla, Houchois says there is "logic in the valuation exuberance."

He backs his revised view with expectations for earnings before interest and taxes to be 50% higher in 2021 than he was previously anticipating. The rosy outlook was influenced by a stronger-than-expected second quarter. Houchois also believes Tesla may reveal some impressive progress on battery density at its "Battery Day" event in September.

Now what

This hiked price target for Tesla shares notably comes ahead of the automaker's planned stock split. Houchois' split-adjusted 12-month price target would translate to $500 per share, as Tesla is going to split its shares 5-for-1. The stock will begin trading on a split-adjusted basis on Aug. 31. 

Tesla's upcoming Battery Day event will take place on Sept. 22. Investors will be able to find a live stream of the event on Tesla's website.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Stocks Mentioned

Tesla Stock Quote
$173.44 (-0.34%) $0.60

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