Morgan Stanley Upgrades GM, Sees Potential 'Radical Strategic Changes'

Courtesy of Benzinga.

In a report published Thursday, Morgan Stanley analyst Adam Jonas upgraded the rating on General Motors Company (NYSE: GM) from Underweight to Equal Weight, while maintaining the price target at $28.

“GM’s efforts to return cash to shareholders surpass every other OEM in the world by a significant margin. The company has committed to returning $10bn of cash to investors through a combination of share buyback and dividends by the end of 2016, giving many investors the thing they wanted most from the company – access to its “fortress” balance sheet, with hopes of improved capital discipline,” Jonas said.

Despite these positives, the company’s share price is relatively flat year-to-date. The stock has underperformed the broader market as well as most of its US and global automotive peers. The stock has underperformed the S&P 500 by almost 80 percent since its IPO.

“We see an alignment of forces that may lead GM to consider more radical strategic changes…We see a wide range of potential strategic options that GM could pursue as it tries to best position the enterprise for the challenges and opportunities that lie ahead in the quickly evolving automotive/transportation landscape,” Jonas wrote.

Each of the alternatives is accompanies by its unique risks and opportunities; and it is not possible yet to predict the level of likelihood of any of the scenarios.

The company’s stock has been under pressure due to the “continued burden of organizational complexity” as well as “low brand consideration by consumers.” If General Motors decides to opt for a more radical approach, the outcomes could well be favorable, but also result in increased volatility.

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