GM Shares Are Oversold and Earnings Will Prove It, Analysts Say
Shares have fallen 8% year to date for the automaker, which has suffered from recalls as well as revelations of a failed corporate culture adept at shirking responsibility for fatal product flaws. But now several analysts strongly recommended GM shares.
They were slightly less optimistic about Ford
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On Tuesday, GM shares closed $37.76, up 33 cents, while Ford shares closed at $17.82, up 16%. Both companies will report earnings on Thursday.
Analysts surveyed by Thomson Reuters forecast second-quarter earnings of 58 cents a share for GM and 36 cents for Ford.
Citigroup analyst Itay Michaeli said he expects GM to beat estimates; he has a price target of $48. J.P. Morgan analyst Ryan Brinkman calls GM "our top overall pick." S&P Capital Markets analyst Efraim Levy has a strong buy.
As for Ford, Brinkman on Tuesday trimmed his second-quarter estimate to 34 cents a share, although he retained an overweight rating. Levy has a buy rating on Ford and an $18 price target. Michaeli said he is "not forecasting a second-quarter beat.
Ford stock "has performed well," Michaeli wrote in a report issued Monday. "The immediate reaction to the quarter could initially be modest. However, Q2 data points should support further second half share price momentum."
Brinkman on Tuesday boosted his second-quarter estimate for GM to 55 cents a share, which still trails consensus; he had been at 51 cents. "While the ignition switch recall that emerged in the first quarter is detrimental to valuation, the market overreaction to this now creates a buying opportunity," he wrote, noting that GM trades at a sharp discount to Ford.
"We like both automakers but see more near-term catalysts at GM, whereas Ford must first endure softer F-150 production," Brinkman wrote. "We expect GM results to improve markedly in 2Q, as the profit impact of transitioning to a new line of full-size 'heavy-duty' pickup trucks and large SUVs goes from a modest headwind in 1Q to a significant tailwind in 2Q (whereas) Ford must first endure softer F-150 production in 4Q2014 and 1Q2015 before being rewarded in 2015."
As for the GM recalls, Brinkman said they have cost GM about $5.8 billion to $8.5 billion in market cap, judging from comparisons to the share price gains at suppliers and Ford, respectively. He estimated the total cost of the recall at $4 billion, including $2.5 billion for repair/rental costs to date and $1.2 billion as the projected cost of a penalty payment to the Department of Justice. That leaves several hundred million dollars to settle claims.