BofA analyst John Murphy raised the firm's price target on Tesla (TSLA) to $800 from $500 and keeps an Underperform rating on the shares. The shares closed Tuesday down $74.64 to $1,568.36.
Tesla's $1,500-plus stock price is "not supported by fundamentals, with valuation driven largely by momentum and low rates," Murphy tells investors in a research note. The analyst attributes the stock's run to the ongoing rotation into and momentum of growth stocks as well as technical buying ahead of Tesla's potential addition to the S&P 500 Index. While data points and news flow "could support the rally for now," Tesla's valuation "appears overheated," contends Murphy. Nonetheless, ahead of the company's Q2 results, the analyst boosted the price target to reflect higher estimates and higher multiples.
It is important to recognize that the higher Tesla's stock goes, the cheaper the company's funding gets to support its outsized growth, which is then rewarded by investors in the form of a higher stock price, Murphy says.
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