Those following GM’s stock likely know that General Motors shares are currently trading roughly eight points lower than the November 2010 Initial Public Offering price of $35.20 per share. As of market close on April 5, 2013, GM’s shares were down 0.79 percent to $27.52; the stock has been trading in the range of $18.72 – 30.68 in the past 52 weeks, with total market cap being $37.60 billion. But not all is doom and gloom, as some (highly-qualified) researchers believe that this is a temporary situation — and that GM’s shares have a major upside on the way.
On March 15, Deutsche Bank Equities researchers increased their target price of GM shares from $38.00 to $39.00, keeping their “buy” rating on the stock. Currently, analysts have a mean target price of $34.88 and a median target price of $35.00, with an estimated Earnings Per Share (EPS) of $0.56 and revenue of $36.72 billion for the first quarter of 2013. Full-year 2013 earnings are estimated to be $157.3 billion, or $3.39 EPS — a 3.30 percent increase compared to 2012.
Analysts see several positive factors in GM’s shares, including:
- Higher (3-year average) revenue growth of 13.3 compared to the industry average of 7.7
- Higher ROE of 23.1 compared to the average of 14.9
- Lower debt/equity of 0.4 compared to the industry average of 0.8
- Lower P/E of 9.7 compared to the industry average of 25.3
- Lower Forward P/E of 4.8 compared to the S&P 500’s average of 13.9
- After the bail-out, GM has a much healthier balance sheet with a total cash of $26.12B and a total debt of $16.05B
In addition, an improving U.S. housing market coupled with increased consumer confidence are definitely not going to hurt the automaker’s chances to sell more vehicles and earn more money; neither will the Fed’s policy of keeping interest rates low (at near zero levels) — a factor that has specifically benefited the U.S. auto industry given that most American car buyers take out loans to purchase new vehicles. Of course, a major product offensive that commences in 2013 can only make matters better for GM.
Another factor in play impacting GM’s stock price is the Treasury’s divestiture of the automaker’s shares. In January 2013, the U.S. Treasury announced an official plan to fully exit its ownership stake in the automaker, and has since then sold at least $646.4 million GM shares — first in February (for $156.4 million) and then in March (for $489.9 million).
The GM Authority Take
For the last few years, The General has been laying the foundation for a very bright, fortuitous, and exciting future — and the fruits of this work are just now beginning to pay off. We won’t see GM’s operations come into full swing, however, until the 2015/2016 timeframe — and the automaker’s shares will likely only begin reflecting its imminent success when 2015/2015 rolls around. By then, GM should also be completely independent of government ownership. As such, we’re anxious to see how GM shares perform then.
Legalese: GM Authority is not an investment firm, and we are not providing financial advice herein. So please do not take it as such.