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Daiwa Downgrades GM To Neutral, Says Global Performance Is Unstable

Courtesy of Benzinga.

Daiwa Downgrades GM To Neutral, Says Global Performance Is Unstable

Daiwa Capital Markets’ Automobile analyst Jairam Nathan downgraded shares of General Motors Company (NYSE: GM) in a research report on Thursday on expectations the automaker’s earnings will decline from its current levels through 2017.

Related Link: General Motors Shares See Downside Following Strong Q2 Results

Expectations, Estimates And Justification

Nathan acknowledged that General Motors “handily” exceeded expectations in its second-quarter print and raised its 2016 outlook. However, the company’s upwardly revised earnings-per-share guidance of $5.50 to $6.00 implies its earnings will actually decline sequentially.

Nathan added that he expects further declines in General Motors’ earnings in 2017 due to a full year of negative impact in the U.K. due to the Brexit vote. He added that prior tailwind effects of volume and pricing are “subsiding” in North America as “demand momentum slowdown.”

With that said, Nathan is now expecting General Motors to earn $5.80 per share for the full fiscal year. The estimate implies “limited earnings outperformance potential,” which justifies his downgrade to Neutral from Outperform although a $31 price target remains unchained.

The analyst’s price target assigns equal weights to a $36 P/E-based valuation (7x to 2017 estimated earnings per share) and $26 free cash flow valuation ($2 billion in free cash generation across a cycle).

Full ratings data available on Benzinga Pro.

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Latest Ratings for GM

Date Firm Action From To
Jul 2016 Citigroup Maintains Buy
Jun 2016 Piper Jaffray Initiates Coverage on Overweight
May 2016 Citigroup Maintains Buy

View More Analyst Ratings for GM


View the Latest Analyst Ratings

Posted-In: Daiwa Capital Markets General Motors General Motors Brexit General Motors Earnings GMAnalyst Color Downgrades Analyst Ratings Best of Benzinga

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