Tesla Motors Inc stock in bear territory after a rare downgrade from S&P Global Market Intelligence over execution and valuation risks

Published By: Ramsha Amir on March 24, 2016 10:32 am EST

At the beginning of this week, Tesla Motors Inc (NASDAQ:TSLA) stock recovered all of its year-to-date (YTD) losses after it received another upgrade ahead of Model 3 unveiling. Since then, the stock has continued to slide for two consecutive trading sessions, due to back-to-back short calls from two different research firms.

Tesla stock hit a session low of $222.03 on Wednesday, down 5.21% from its previous closing price, and closed the trading session at lower 4.98% at $222.58. Even today, the shares are in the red zone in the early trading hours, down 2.30% at $217.45 as of 8:18 AM EDT.

Following being slapped with an “overvalued” status by Devonshire Research Group on Tuesday, the world’s most popular electric vehicle (EV) maker’s stock received a rear downgrade from S&P Global Market Intelligence.

Analyst Efraim Levy not only notched down Tesla shares to “Sell;” he also expected the stock price to decline more than 30% to $150 in next 12 months. He believes that the recent massive surge in the stock was primarily in anticipation of the mass-market sedan’s event and some optimistic commentary by Street analysts.

Certainly, Tesla shares jumped as much as 70% from its 52-week low of $141.05 after Elon Musk, the man behind Tesla, tweeted on February 10: “Model 3 reservations ($100 down) will be accepted in Tesla stores on March 31 and online April 1.”

Mr. Levy agreed with majority of the Street that the still young car manufacturer will sees massive growth in the short-term; however, he has not been satisfied with the current valuations. Although the research firm expects the company’s top-line and bottom-line jumping significantly this year, it still has doubts over Tesla’s execution capability and sees substantial valuation risk

The $155 price target represents a multiple of 111x the sell-side firm’s FY16 EPS estimate of $1.40 and 43x of its FY17 EPS projection of $3.60. Despite foreseeing strong automotive earnings growth next year, S&P Global Market Intelligence noted risks.

The downgrade is a rare one at this stage, when everyone is excited over the stock ahead of its make/break Model 3 unveiling. Additionally, Tesla recently received upgrades from Baird and Argus and bullish comments from Stifel and Oppenheimer, as they loved what they saw at Tesla Factory in Fremont, California. The automaker has improved Model X production, made production process efficient, and eyes positive cash flows this year.