‘High expectations,’ lower premiums for Buick’s Avenir

GM shares down amid skepticism from pair of analysts

General Motors analysts are squaring off into two camps, and it’s the pessimists who resonated in Monday’s market.
Anne Riley Moffat
Automotive News | October 30, 2017 – 12:28 pm EST

General Motors analysts are squaring off into two camps, and it’s the pessimists who resonated in Monday’s market.

The automaker fell the most intraday since February after at least two analysts began questioning whether its core auto business can sustain profits. GM shares dropped as much as 5.3 percent in New York trading Monday and closed down 2.84 percent, or $1.27, at $43.37.

The words of warning came from Goldman Sachs analyst David Tamberrino, who cited a peaking North American auto cycle in general and GM’s pickup changeover cycle in particular as factors influencing his downgrade from “sell” from “neutral.” Consumer Edge Research analyst Jamie Albertine, who didn’t downgrade the stock, signaled GM’s “strength of narrative” isn’t strong enough to support its premium at a time when U.S. vehicle sales are plateauing after a record seven years of growth.

The reality check from Wall Street caps off a period of growth for the automaker, which had climbed 28 percent this year through Friday amid a parade of analyst reports lauding its newfound technology chops. Bullish investors are betting that GM’s test fleet of self-driving electric cars can be converted into a lucrative robotaxi operation worth billions. A dimmer view says that advanced mobility businesses are a long way off and that profits from GM’s core business will suffer as vehicle sales slow in its home market.

“Though we appreciate the strides GM is making to position itself for ‘Auto 2.0,’ the next generation of shared mobility and autonomous driving, we believe the next step for EPS is down, not up,” Albertine wrote in a Monday note.

Tamberrino set a 12-month price target of $32, a dollar lower than its 2010 initial public offering price. Albertine said GM stock is probably fairly valued at $40 a share. Others have been raising their outlooks, with two analysts’ price targets as high as $55, data compiled by Bloomberg show. Longer term, Citigroup Inc.’s Itay Michaeli said GM has a “path to $134” with its strong core auto business complementing a robotaxi head start.

“We think people are too aggressive on the payback,” Albertine said in a phone interview Monday, noting that the market may be off on the timing of GM’s technology moves. “Racing to $50 a share is too generous in awarding a business that may not justify its valuation for seven to 10 years.”

Shorter term, GM may also face headwinds due to its upcoming pickup refresh, Tamberrino said.

“As GM approaches a 2018 changeover with incremental downtime and given Ford’s recently refreshed F-Series, we expect share shifts to pressure GM,” he wrote in an Oct. 30 note. He said he’d be more positive on the stock if GM further reduces inventory levels and cuts incentive spending.

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