Ever wonder how analysts come up with their price targets The following is a simplified (as in Cole's notes} example of how Gary Black sets his price target for Tesla. Note that what Gary has generated is a footnote summary of assumptions after all the work has been done to get to that point. By "work" I'm referring to how revenues and variable costs are calculated to generate gross margins. After that, ebitda and profitablity are calculated.
When I was doing the above in the "old days" my spreadsheets were 15 pages long where every number was a calculation based upon all of the numbers that came before it.
When a new number is generated either through an event or a revised guidance by a company or from the latest financials, hte "difference" between the ACTUAL vs EXPECTED has to be input into the spread sheet which in turn generates new numbers throughout all of the interdependent calculations.
In a world that is constanatly changing, it is not difficult to see how complicated everything gets.
Every time I see some clown with a keyboard ridiculing analysts for unreliable numbers, it makes me laugh. They have no ideal of the hundreds of hours of work done by bright people with sophisticated tools that has been put into generated the estimates.
After saying all of that, creating estimates is honestly like finding a proverbial needle in a haystack. That is why CFO's feed analysts the numbers. Some CFO's are better than others. The reason that I'm such a big fan of ENB/ENS is that the company has always fed pretty much all the numbers to all of the analysts which takes a huge amount of guesswork out of the game. To that end, the analysts seem to be revising ENB's Q3 estimates down a bit which we will learn about on Friday.
Here is Gary Black's note this morning on Tesla:
I have raised my $TSLA 6-12 month price target to $300 from $270, based on my 2030 Adj EPS of $16 (up from $15), a PEG multiple of 1.5x, and expected long-term EPS growth of 25% (new 2030 PT $600 = $16 x 25% x 1.5x; at a 14.2% cost of equity, that equates to a present value of $300). WS analysts continue to boost $TSLA FY’25 earnings and price targets to reflect higher FY’25 auto gross margins and delivery growth. My $TSLA adj earnings ests are now FY’24 $2.40 (WS $2.38) and FY’25 $3.60 (WS $3.22). The avg $TSLA WS PT is now $227. The $42/share discount between $TSLA price and price target is approaching the largest discount since June 2023, suggesting further PT increases as analysts update their earnings and valuation models.