Analysts Praise GM's Potential After Investor Day

General Motors Company GM management reinforced bullish theses during its weekend Investor Day, when it previewed 2018 outperformance and guided for 2019 strength.

“GM’s unique fundamental position (Pickups + AV + self-help) and the path to our prior $76-134 LT upside potential case have probably never been as visible as they are today,” Citigroup analysts wrote in a note.

While Barclays couldn't identify a catalyst for the suggested upside, it conceded transformation in the business and culture.

“Someday, we believe GM will make a fascinating business school case study around the reinvention of a moribund old-line firm,” Barclays analysts wrote. “Key elements of the transformation include shedding or downsizing unattractive geographies (Europe sold, Korea downsized), scaling back low ROIC product lines, and creating an option on future mobility, and driving a culture of accountability.”

Asset Strength

The sustainable growth of pickup trucks, in particular, reassured Citigroup, although the analysts concede the point may be overlooked by the rest of the Street.

“In this case, we think GM should take the next step forward and re-segment Pickups outside of traditional auto segments,” they wrote. “We frankly would’ve liked to see this occur already, but the re-messaging was a step forward and our conversations with GM senior management continue to suggest openness to taking further actions.”

GM’s electric vehicle platform also inspired analyst conviction. The BEV3 program is expected to release its first Cadillac in 2021.

“The potential to unlock the value of GM’s Cruise unit is also a potential catalyst for further upside as well,” Tigress Financial wrote.

Regional Strength

In 2019, GM anticipates record U.S. demand for SUVs and trucks to complement strong China sales. The Asian market has already defied expectations stunted by macroeconomic concerns.

“That 4Q tracked stronger than implied by this guidance is impressive considering the significant slowdown in China industry new vehicle sales since the time of 3Q earnings and company-specific actions to curtail production in the region in order to right-size dealer inventory,” JPMorgan analysts wrote.

GM also suggested possible pursuit of cost actions in South America. Exposure to global emerging markets is expected to lend a 2020 tailwind.

Free Cash Flow

Management projected $4.5 billion to $6 billion of 2019 adjusted automotive FCF — well beyond consensus estimates for $2.9 billion.

“GM plans to address some of the lingering concerns around cash flow conversion by initiating dividends from GMF, and reducing capex and restructuring,” Barclays wrote.

The Ratings

• Barclays maintained an Overweight rating with a $49 price target;
• Citigroup maintained a Buy rating with a $60 target;
• JP Morgan maintained an Overweight rating with a $53 target; and
• Tigress Financial maintained a Buy rating with a mid-$40 target.

GM's stock traded around $37.63 per share at time of publication.

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General Motors CEO Mary Barra in June 2017. Photo by Dustin Blitchok.