Adam Jonas Upgrades General Motors: Still Plenty Of 'Cars With Steering Wheels Left To Sell'

Given all the excite regarding fully autonomous vehicles, Morgan Stanley’s Adam Jonas believes investors might be underestimating the time as well as the steps required to get there.

Jones upgraded General Motors Company GM from Equal-weight to Overweight, while raising the price target from $29 to $37.

Potential Positive Surprise

“We believe GMs businesses can remain relevant and profitable for longer than the market thinks. A move to Auto 2.0 requires a lengthy transition period during which time GM can generate cash, return cash and nurture new businesses with potentially positive terminal values,” the analyst explained.

Following the meaningful Q2 earnings beat, Jones expects the company to deliver flat earnings in 2017 and 2018. If this does occur, the market is likely to be positively surprised.

The analyst believes stable earnings through 2018 would help General Motors demonstrate a significant inflection that could drive further free cash flow generation, as well as share price.

Related Link: 8 Takeaways From General Motors' Sell-Side Analyst Dinner

Lots Of Cars With Steering Wheels

Mentioning that there still were a lot of “cars with steering wheels” left to be sold, Jones believes “investors may be underestimating how long this cycle can last and the related levels of mix and profitability, driven by further extension of credit and ADAS-led replacement demand.”

What this means is that General Motors could have a significantly greater duration for its earnings and free cash flow generation, which is currently being discounted by the market in the stock valuation.

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