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Tesla's price target set at Wall Street high as JMP Securities sees long-term growth potential

Tesla (TSLA) got a boost Tuesday after JMP Securities upgraded the stock and set a price target on shares to the highest level on Wall Street, citing an upbeat long-term outlook for the electric car-maker.

JMP analyst Joseph Osha upgraded Tesla’s stock to Market Outperform from Market Perform in a note Tuesday and established a price target of $1,060 per share. The target implies about a 43% return versus Monday’s closing prices. Osha had maintained a Market Perform rating on the stock since October.

Shares of Tesla rose 2.42% to $761.55 each, paring some gains after earlier rising as much as 8.5% to $806.94 apiece but outperforming the broader market.

Osha’s new call suggests a $198 billion market capitalization and 32x EBITDA multiple based on 2021 estimates, which would be expensive relative to other auto stocks. However, Osha said a rich valuation would be supported by Tesla’s growth potential relative to its peers.

“TSLA is on track to show a CAGR [compounded annual growth rate] of 23% for 2018-2020, and we think that rate of growth appears sustainable for the next 4-5 years,” Osha said in a note.

“Second, we also argue that the $198 billion market capitalization implied by our price target does not seem unreasonable if one considers the potential for TSLA to be a 1.8 million unit company by 2025. That is more than 3x our forecasted 2020 volume,” he added. “TSLA requires no additional market share gains to get to that number, and our analysis already assumes that most of the Chinese market is inaccessible to TSLA.”

Tesla CEO Elon Musk speaks during the Tesla China-made Model 3 Delivery Ceremony in Shanghai. - Tesla CEO Elon Musk presented the first batch of made-in-China cars to ordinary buyers on January 7, 2020 in a milestone for the company's new Shanghai "giga-factory", but which comes as sales decelerate in the world's largest electric-vehicle market. (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)
Tesla CEO Elon Musk speaks during the Tesla China-made Model 3 Delivery Ceremony in Shanghai. - Tesla CEO Elon Musk presented the first batch of made-in-China cars to ordinary buyers on January 7, 2020 in a milestone for the company's new Shanghai "giga-factory", but which comes as sales decelerate in the world's largest electric-vehicle market. (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)

Tesla said in January it expected to deliver more than 500,000 units in 2020, after handing over 367,500 units in 2019.

Osha estimates that Tesla has captured about 40% of its current addressable market – a proportion other major automakers have managed to maintain over time.

“A perusal of offerings from competitors suggests that TSLA’s market position should continue to be dominant,” Osha said.

Osha added that the recent broader stock-market pullback had offered an opportunity for investors to enter the stock.

Tesla shares dropped more than 25% between February 20 and last Friday, tracking a decline in global equities as concerns over the coronavirus outbreak escalated. Tesla said in January it anticipated a one- to one-and-a-half week delay to the ramp up of its Shanghai Gigafactory production amid the outbreak, which began in China.

Seven Wall Street analysts rated shares of Tesla as Buy or Buy-rated equivalents, 12 rated them as Hold, and 18 rated them as Sell as of Tuesday, according to Bloomberg data.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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