On Monday, BMO Capital Markets upgraded GM stock to an outperform rating, from market. The investment arm also increased the price target of GM stock from $38 to $41 per share. The moves signal to investors that they should buy GM stock.
Analyst Richard Carlson made the change to due two factors: the opportunity behind the GM Cruise autonomous vehicles division as well as GM’s ongoing restructuring of its core business.
“We expect a brighter spotlight to be placed on GM Cruise in 2019, leading to a more appropriate value for this business being priced into the shares,” said the analyst. “We believe restructuring efforts will drive better profitability and [free cash flow], as well as improve cyclical resilience”, he added.
The GM Cruise division is actively working on a robotaxi service that it plans to launch in the near- to medium-term future.
GM acquired Cruise in 2016 to leap ahead of other rivals, including new startups and traditional automakers, in the race to bring self-driving cars to market. In November, GM announced that its then-president, Dan Ammann, would take over as Cruise CEO starting January.
“We believe a key catalyst for GM shares in 2019 could be an increased valuation for GM Cruise being priced into the stock,” said Carlson.
Carlson added that the ongoing restructuring of GM’s core business operations should also help its shares climb after a disappointing 2018, during which time GM stock values fell over 18 percent.
In November, GM announced plans to halt production at five plants and cut more than 14,000 jobs.
“Within the core business, we expect restructuring initiatives to drive higher profit margins and free cash generation, while also improving cyclical resilience, which should also drive a higher multiple,” he said.
GM stock rose 1.4 percent on the news on Monday, closing the day at $34.37. It then spiked to $35.64 in morning trading on Tuesday before closing the day at $34.81 per share.