Here’s what Wall Street analysts say as Tesla makes its debut on S&P 500

Shares of Tesla (NASDAQ: TSLA) trade 5.5% in the red on the first day of trading as a constituent of the S&P 500 index. 

Fundamental analysis: The largest-ever company to be added to S&P 500

The inclusion of Tesla on the S&P 500 means that other index funds will have to purchase almost $80 billion of the automaker’s stock while unloading shares of other companies tracked by the benchmark index. 

Tesla is the largest-ever company to be added to the S&P 500 with a market value of over $600 billion. At first, the S&P Dow Jones committee considered adding Tesla’s stock to the index in two tranches to ease the inclusion. 

However, the committee later decided to integrate the stock all at once at its full float-adjusted market capitalization before it starts trading on the index, meaning that they will weigh the carmaker based only on the number of shares available to the public. 

S&P Global Ratings raised Tesla’s credit rating from “BB-” to “BB” including positive guidance. According to analyst Daniel Ives calculations, Tesla will account for about 1% of the S&P 500’s market cap.

The agency pointed out that equity share sales this year of $12.3 billion have helped raise liquidity and minimized Tesla’s financial risks. 

“As a result, Tesla’s net debt is essentially zero. Based on a key credit metric, debt to EBITDA, our assessment of financial risk has reduced substantially. With more cash on its balance sheet than debt, the company appears easily able to fund its global expansion in China and Europe, and broaden its U.S. manufacturing base by opening a facility in Austin, Texas. Moreover, this cushion of cash will help the company navigate through the ongoing economic impact from the resurgence of COVID-19,” it is said in the S&P Global Ratings note.

Technical analysis: Correction takes place 

High interest to buy Tesla stock was recorded on Friday ahead of the carmaker’s debut today on the S&P 500 index. However, shares have now already erased those gains to force a correction of the highs. 

“Hedge funds will treat this as a negative catalyst for Tesla given buying pressure eases off very quickly,” Roth Capital Partners analyst Craig Irwin said in an interview.

Tesla stock daily chart (TradingView)

Similarly, Bernstein analyst Toni Sacconaghi believes that the post-inclusion selloff may continue. 

“There is strong precedence for positive returns for stocks prior to S&P 500 inclusion and post announcement but very limited precedent for near-term outperformance post inclusion,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note earlier this month.

Tesla stock price is now testing the intraday support around the previous resistance line at $650.00.

Summary

Tesla stock price hit a new record high on Friday, before correction lower today after making its debut on the S&P 500 index.

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