Big Tesla bull downgrades stock, says there's no 'reasonable basis' for more gains right now

Published Tue, Jul 21 20202:26 PM EDTUpdated Tue, Jul 21 20203:11 PM EDT

(This story is only for CNBC Pro subscribers ) One of Tesla's biggest bulls on Wall Street downgraded the equity and warned clients that — at least for right now — there isn't a compelling reason the stock should continue its eye-popping rally. Though his forecast for Tesla's stock exceeded any other earlier this year, JMP Securities analyst Joseph Osha wrote Tuesday that it's now more difficult to say the stock has significant upside left in the near term. As such, he decided to downgrade the equity to market perform from market outperform. "We continue to believe that TSLA can become a $100 billion car company by 2025, but we cannot arrive at a reasonable basis for arguing that the stock should be valued above current levels, even considering our fundamental outlook," the analyst told clients. "The company's valuation now slightly exceeds the $1,500 price target that we established recently," he continued, "and we believe that any intermediate-term success that TSLA might discuss during its earnings call tomorrow is now fairly reflected." Osha isn't the only sell-side analyst who's grown more cautious of the stock in recent weeks. The stock's eye-popping surge in recent months is difficult to overstate: Tesla is up 47% in July, 190% over the last six months and 514% over the last year. Though many brokerages — including JMP Securities — believe Tesla is bound for success in the long term, many have warned that such a spike can indicate sentimental trading instead of more-rational fundamental analysis. Adam Jonas, a widely followed analyst at Morgan Stanley, wrote earlier this month that the "Power of Hope" is powering Tesla's frenzied rise. "The power of hope, the formation of capital and the movement of share prices have long co-existed in a symbiotic relationship. Hope is the fuel of democratic capitalism. It doesn't always work out, but when it does … it's special," Jonas wrote in early July. The equity was last seen down 3.6% in afternoon trading on Tuesday as more cautious investors booked profits. But Osha's downgrade is more unusual given how bullish he's been on the California automaker as recently as this spring. He upgraded Tesla to outperform in March and established what was then a Street-high stock price forecast of $1,060 per share. He wrote at the time: "The recent market-driven pullback provides investors with a good opportunity to enter the stock in our opinion, and a perusal of offerings from competitors suggests that TSLA's market position should continue to be dominant." The stock has even surpassed Osha's revised forecast of $1,500, which he established as recently as July 6. So given the market's fascination with the stock, the analysts said he'll be paying close attention to Tesla's second-quarter earnings report when the company releases it on Wednesday. Osha wrote that he anticipates CEO Elon Musk to have helped the company make progress on auto volumes and wider gross profit margins. He'll also be looking for management to comment on Tesla's plant in Shanghai and if the company is on track to make more than 500,000 cars there this year as expected. — CNBC's Michael Bloom contributed reporting.

SpaceX founder and Tesla CEO Elon Musk.

Joe Skipper | Reuters

(This story is only for CNBC Pro subscribers)

One of Tesla's biggest bulls on Wall Street downgraded the equity and warned clients that — at least for right now — there isn't a compelling reason the stock should continue its eye-popping rally.

Though his forecast for Tesla's stock exceeded any other earlier this year, JMP Securities analyst Joseph Osha wrote Tuesday that it's now more difficult to say the stock has significant upside left in the near term.

As such, he decided to downgrade the equity to market perform from market outperform.