Should Netflix Replace Tesla in "Mag 7"? ETFs in Focus
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Electric vehicle giant Tesla TSLA hit headlines recently with an impressive third-quarter earnings report, sending its stock soaring in one of its biggest single-day gains in a decade. Last week, the Tesla stock jumped about 23% primarily due to margin improvement and an upbeat outlook (read: Tesla Records its Best Day in 11 Years: 5 ETF Winners).
Despite this surge, Wall Street remains divided over Tesla's place in the “Magnificent Seven” — a group of market-dominating tech giants, including NVIDIA NVDA, Apple AAPL, Alphabet (GOOG, GOOGL), Amazon AMZN, Meta META, Microsoft MSFT and Tesla (read: Is Tesla's Stock Pop Sustainable? TSLA ETFs in Focus).
As the third-quarter earnings season kicks off, the Magnificent Seven is anticipated to record 18.1% year-over-year earnings growth, with NVIDIA, Alphabet, Amazon and Meta among the top contributors to S&P 500 earnings growth, per FactSet, as quoted on Yahoo Finance.
Tesla’s Earnings Rebound Yet Leave Analysts Skeptical
Tesla’s third-quarter profits showed a 17% jump, a meaningful rebound after two quarters of decline. However, analysts remain cautious about Tesla’s long-term position among Big Tech, citing concerns that its fundamentals may be overhyped.
We would like to note that Tesla’s delivery numbers fell short of estimates in the past. Tesla has been losing market share to its rivals in both China and the United States, resulting in a notable slowdown in growth. This month itself we have seen Tesla’s unimpressive robotaxi event, which failed to meet expectations, raising concerns among ridesharing investors.
Valuation Concerns Add to Tesla’s Strained Standing
Tesla’s pricey valuation further complicates its status within the Magnificent Seven. Although higher growth tends to demand a higher valuation, with a forward price-to-earnings ratio of nearly 115.54, Tesla’s valuation far exceeds its tech peers.
Image Source: Zacks Investment Research
Analyst sentiment reflects this caution. Tesla currently has an average brokerage recommendation (ABR) of 2.96 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 39 brokerage firms. The current ABR compares to an ABR of 2.89 a month ago based on 38 recommendations.
Of the 39 recommendations deriving the current ABR, Strong Buy and Buy, respectively, account for 23.08% and 5.13%. It is the lowest approval rate within the Magnificent Seven.
Tesla’s Stock Price Target
Based on short-term price targets offered by 35 analysts, the average price target for Tesla comes to $206.22. The forecasts range from a low of $24.86 to a high of $310.00. The average price target represents a decline of 23.4% from the last closing price of $269.19 as on Oct. 25.