A majority of the sell-side analysts covering General Motors' (GM, Financial) stock are positive about the company's prospects. According to Yahoo! Finance, out of 18 analysts covering the company, 12 are positive and have buy ratings, and five have hold ratings. The only analyst who has an underperform rating on the stock is Morgan Stanley's Adam Jonas. However, it seems like even he believes that the stock can outperform in the near term. In his recent report to clients, Jonas has noticed that "Phones have gone seriously cold on GM" and he is not receiving much interest in GM from investors. In his own words,
"We cannot remember the last time we have received such little interest in GM from investors since its IPO."
Interestingly, Jonas believes that the lack of phone calls may actually be a bullish sign for the company. "While we remain concerned over the cyclical and secular challenges facing GM, we can’t help but see lack of interest as a near-term positive," he wrote. "In our experience, such lulls in sentiment can frequently suggest near-term stock outperformance," Jonas added.
General Motors has seen a lot of positive analysts commentary from sell-side anlysts after announcing a $5 billion share repurchase program earlier last month. Citigroup’s analyst Itay Michaeli believes that the stock has more catalysts going forward. In his latest report, he commented,
We maintain conviction in our “It’s GM in 2015 thesis” and continue to expect General Motors to trade at a premium to peers by year-end 2015. We expect the shares to respond well to this news. The next catalyst after this, in our view, will come from greater appreciation of (1) General Motors’ robust 2016 North America product cycle coming off easier car profitability comps; (2) General Motors’ innovation lead and hidden value within the OnStar/LTE franchise; (3) Less Yen exposure vs. Ford Motor (F); (4) Long-term opportunity at General Motors Financial per today’s 2018 target unveiling. Reiterate Buy/$49 target.
Its not only the sell side that is bullish on GM recently. General Motors' stock is also seeing significant interest from fund managers. Last quarter, two of the Wall Street's savviest investors, Warren Buffett (Trades, Portfolio) and George Soros (Trades, Portfolio) increased their stake in the company. Warren Buffett (Trades, Portfolio) now holds 41 million shares of the company while George Soros (Trades, Portfolio) holds ~3.86 million shares and more than 1 million call options. Other notable investors who bought shares of the company last quarter includes Ken Heebner (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and T Boone Pickens (Trades, Portfolio).
The company's business is improving, and it has now been profitable for 20 consecutive quarters. Last quarter, GM's business delivered strong core operating performance with almost all key operating metrics including global deliveries, net income and adjusted EBIT improving. The company's adjusted EBIT was $2.4 billion for the fourth quarter, a $500 million improvement over the prior year. Adjusted EBIT margin was 6.10%, up 140 basis points from the fourth quarter of 2013. Net income to common shareholders was $1.1 billion, up $200 million compared to prior year period and earnings per share improved to $0.66 versus $0.57 of prior year.
The company is expecting even stronger operating performance in FY2015. For FY2015, management is expecting adjusted EBIT and adjusted EBIT margins to improve in all automotive regions. For FY2016, the company's target is to reach 10% adjusted EBIT margins in North America, profitability in Europe and maintaining strong net margins in China.
The company is passing benefit of this strong performance to its shareholders and intend to raise its common stock dividend 20% to $0.36 per share from second quarter of the current year. This is over and above $5 billion in buy-backs announced earlier last month. At current valuations, the announced buy-backs will reduce GM's share count by 8.2%.
General Motors is trading at 8.22 times FY2015 EPS. The company has an attractive dividend yield of 3.20%. The company's improving performance is attracting attention of sell-side analysts and some of the most successful fund managers. I believe General Motors offers a good value at the current levels.
