Piper Sandler hikes Tesla price target to new Street high, sees 25% upside

Published Thu, Oct 28 20216:08 AM EDTUpdated Thu, Oct 28 20218:07 AM EDT

Piper Sandler just became the biggest Tesla bull on Wall Street. The research firm hiked its price target on Tesla to $1,300 per share from $1,200 per share. The new projection is a fresh Street high and represents a potential gain of 25.2% from the stock's Wednesday close. Piper Sandler also reiterated its overweight rating on Tesla. "Yes, we still like TSLA (even from 'up here')," analyst Alexander Potter said in a note Wednesday. Tesla shares have been on a run after a better-than-expected quarterly earnings report last week and news of Hertz ordering 100,000 cars to build out its electric vehicle rental fleet. The company hit a $1 trillion market cap for the first time Monday, joining the likes of Amazon, Apple and Microsoft. Piper Sandler noted electric vehicle competitors expected to be "Tesla Killer" models have failed to match Tesla's post-launch performance. "'Tesla Killers' haven't really earned their moniker," Potter said. "Every TSLA bear thesis includes commentary regarding the likely impact of future competition. But lots of supposed 'Tesla Killer' models have already been on the market for several quarters." Plus, Tesla in the third quarter reported "exceptional" gross margin, which can be partially attributed to a strong warranty performance, the analyst wrote. Warranty expenses comprised only 1.5% of revenue in the third quarter, outperforming the industry norm of 2% to 3% of revenue, according to Piper Sandler. "Product quality also made a major contribution in Q3, and this topic isn't getting enough airtime," Potter said. The firm also believes deferred revenue could boost Tesla's profitability as it opens new factories in Germany and Texas. Deferred revenue refers to advance payments a company receives for a future product or service. In Tesla's case, much of its deferred revenue is related to high-margin software. Tesla shares are up 47.1% this year, outperforming the S & P 500's 21.2% gain and the Nasdaq Composite's 18.2% rally. Shares rose 2.5% in premarket trading Thursday. —CNBC's Michael Bloom contributed reporting.

Tesla CEO Elon Musk gestures as he visits the construction site of Tesla's Gigafactory in Gruenheide near Berlin, Germany, August 13, 2021.

Patrick Pleul | Reuters

Piper Sandler just became the biggest Tesla bull on Wall Street.