One Factor Bringing General Motors (GM) Stock Down Today
NEW YORK (TheStreet) -- Shares of General Motors (GM) - Get Report were falling 1.2% to $38.12 Tuesday after the auto maker announced a recall of about 92,00 Chevrolet Malibu midsize sedans.
GM is recalling the vehicles to fix a problem with their power sunroof controls, according to Reuters. The recall includes vehicles from the 2013, 2014, and 2015 model years. GM said the issue can cause the sunroof of the Malibu to close inadvertently, even if the controls are barely touched.
The auto maker said it didn't know of any injuries caused by the issue, and that it didn't receive any customer complaints. GM issues a recall of about 67,000 Cadillac ATS sport sedans last month for the same issue.
Insight from TheStreet's Research Team:
General Motors is a core holding of Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. During the most recent weekly roundup, this is what Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research - Action Alerts PLUS had to say about the stock:
General Motors (GM:NYSE; 3,100 shares; 4.21%; Sector: Consumer Discretionary): Shares traded modestly higher this week despite Morgan Stanley initiating on shares with a Sell rating and $28 price target. The first thing we would like to note is that the Morgan Stanley analyst in question has little to no credibility, especially when it comes to his "short" ideas. He has held an "Underweight" rating on both Harman International and Avis Budget Group since March of 2013; since then, shares of Harman and Avis are up 210% and 150%, respectively.
In fact, historical correlation suggests his negative stance could be interpreted as a positive for the long-term trajectory of the stock. The Morgan Stanley analyst criticized GM's recent decision to return excess free cash flow to shareholders, yet given the company's $20 billion cash load we believe it would be value-destructive for GM to not put at least some of its overflowing cash reserves to use.
On its conference call last week, management took great lengths to articulate why its new capital allocation strategy will not in any way compromise its financial health. For one, the company plans to keep reinvesting in its business with a goal of achieving a return on invested capital of at least 20%. To keep that goal in sight, GM in 2014 changed its incentive compensation plan to align with ROIC and total shareholder return. Also, management will only return excess free cash flow as long as its reserves are above $20 billion and its credit rating stays investment grade. Overall, we are excited by the company's aggressive capital allocation strategy and believe it is structured in a way that preserves its financial health. GM's free cash flow generation is unparalleled, and with the recall issues largely behind it, we believe the company is in a prime position to start rewarding shareholders for their patience. Our target is $45.
-Jim Cramer and Jack Mohr, "Weekly Roundup," originally published 3/20/15 on ActionAlertsPlus.com
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 number of 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 increase in net income, good cash flow from operations, increase in stock price during the past year, growth in earnings per share and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 91.0% when compared to the same quarter one year prior, rising from $1,040.00 million to $1,987.00 million.
- Net operating cash flow has slightly increased to $3,164.00 million or 3.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -24.41%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's 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 the other strengths this company displays justify these higher price levels.
- GENERAL MOTORS CO has improved earnings per share by 15.8% 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 $1.64 versus $2.35 in the prior year. This year, the market expects an improvement in earnings ($4.59 versus $1.64).
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.1%. Since the same quarter one year prior, revenues slightly dropped by 2.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: GM Ratings Report