General Motors Company (GM) Is Poised For Higher
The auto sector has witnessed an uptrend in last five years aided by the prolonged lower interest rate adopted by the Central Bank in the United States to stimulate demand. The actions were necessary because of the deep-rooted impact of the financial crisis that struck the globe in 2008. Since then not only the retail investors but also the companies start planning for down-turn management. In a cycle, a downturn cannot be prevented. Therefore, how General Motors Company (NYSE:GM) is placed is a question after the company suffered the most in the previous downturn. The company has come back very well.
Current Market Condition Is Ripe For GM
There has been marked changes in the management after it came out of the bankruptcy. It now earned a name for its efficiency as the company was termed historically as a weak organization. More than the efficiency level, the management is also gaining significant traction in lifting the efficiency level. General Motors Company (NYSE:GM) has also demonstrated its capability in strengthening its product development, as well as, product profile. Though it might have faced some issues like the ignition law suits, it managed to limit the damage and succeeded in settling the issue amicably. Also, the company could continue to focus its core area of operations, and not allow its attention to be diverted.
General Motors Company (NYSE:GM) is also poised to take advantage of the situation arising out of the Volkswagen AG (ADR) (OTCMKTS:VLKAY)’s bungling on emission issue. Its incoming Chairman has given enough warnings to its managers that the diesel-emission issue posed an existence threat. Volkswagen has admitted to have cheated on emission norms right from the year 2008 following the discovery that the new diesel engines failed to meet emission standards of the Americas and other nations. The German automaker felt that its years of efforts to develop the diesel engine would go wasted and preferred to install software to beat the tests. Now, the company’s focus would shift towards handling the situation and the lawsuits from different countries in respect of emission norms cheating and the damages. More than that, buyers will think twice before thinking about the brand, which now stands shattered.
Advantage General Motors
One of the automakers to take advantage of the situation would be the biggest automaker in the United States, General Motors Company (NYSE:GM). The company already has several models under its fold with solid sales in the Americas. The financial crisis has also done a world of good to preparing the company to face any crisis. That meant even if the down-turn is there, it can manage better than anyone else. Also, the company is likely to enjoy a leadership position in electric vehicles, as well as, connected car-car technology due to its cost advantages.
Credit Suisse has already boosted its EPS estimation to $4.55 from $4.50 for the current year and to $5.26 from $4.70 for the next year. The revised projections are above the Street analysts’ consensus. The brokerage also initiated EPS estimation at $5.40 for the year 2017. The brokerage believes that General Motors Company (NYSE:GM) should be able to generate a free cash flow of $6.2 billion next year. As a result, Credit Suisse also boosted its price target to $36 from $33. It projects 10.2% margin in North America next year compared to adjusted 11% in the first half and continued losses in the European Union to the tune of $250 million. The margin in China will drop to 7.5% from 10% in the first six-month period.
Investors To Gain Confidence
The brokerage said that investors’ confidence would increase in General Motors Company (NYSE:GM)’s capacity to generate $6 billion free cash flow next year. That was because it will help in sustaining the pace of dividend outlook and the current buyback of its shares. Credit Suisse said that the increasing costs of regulatory compliance and trans-formative technology would limit the potential for price/earnings multiple to seven times. That implies to a target price of $38 on General Motors Company (NYSE:GM) shares based on its EPS for 2017.
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