NEW YORK (TheStreet) -- Shares of General Motors Co. (GM - Get Report) are down -1.80% to $33.91 in pre-market trade after Morgan Stanley (MS) downgraded the automaker to "underweight: from "equalweight," and cut its price target to $33 from $49.
The firm's analyst Adam Jonas sees the auto industry entering an era of 'significant technology disruption.'
The analyst said,
The pressures will challenge conventional thinking on capital allocation, engineering and human resources. We think the market's got it right on GM valuation and no longer see significant risk-adjusted upside ... GM is highly levered to a cyclical recovery in the North America car market, augmented by an aggressive product revival.
Continuing, he added, "The biggest fundamental opportunity for the 'new GM' is to take risk on the top line (new products and technology) that its predecessor was never able to adequately withstand. GM will need to muster every bit of its financial and technological resources to make the transition to advanced powertrains, connected vehicles and, ultimately, autonomous cars."
TheStreet Ratings team rates GENERAL MOTORS CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate GENERAL MOTORS CO (GM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 4.5%. Since the same quarter one year prior, revenues slightly increased by 3.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Net operating cash flow has significantly increased by 291.54% to $3,058.00 million when compared to the same quarter last year. In addition, GENERAL MOTORS CO has also vastly surpassed the industry average cash flow growth rate of 30.77%.
- The debt-to-equity ratio is somewhat low, currently at 0.85, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.85 is somewhat weak and could be cause for future problems.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.48% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- GENERAL MOTORS CO has improved earnings per share by 5.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENERAL MOTORS CO reported lower earnings of $2.35 versus $2.93 in the prior year. This year, the market expects an improvement in earnings ($3.57 versus $2.35).
- You can view the full analysis from the report here: GM Ratings Report