Wall Street went cold on shares of
Thursday after the company's latest sales report showed a swoon in June.
The automaker's shares recently were trading down more than 3% after Bear Stearns analyst Peter Nesvold downgraded the stock to a peer perform rating from outperform, citing its hefty valuation.
Back in May, Nesvold upgraded GM, saying the market was failing to recognize the cost benefits that the automaker stands to gain in its upcoming negotiations with organized labor. Since then, the stock has climbed 31%, and with the company's report of a 21%
decline in June sales, Nesvold believes the rally has run its course.
"Although we think the likelihood and magnitude of healthcare restructuring will still be the biggest driver of GM shares, all considered it seems prudent to take profits here and revisit the trade upon a pullback," wrote Nesvold in a note to clients.
Nesvold pointed to the company's June results -- along with factors like increased discounting by Japanese rivals, gas price increases and mortgage concerns -- as signs that GM's "fundamental headwinds appear to be heightening."
After the market closed Tuesday, GM said it sold 320,668 passenger vehicles in June, compared with 407,513 during the same period last year. The company attributed part of the decline to a shift away from selling to rental-car companies -- a move that also led to sales declines at rival
. But excluding the effect of fewer rental-car sales, Ford managed sales gains for the month, while GM still had a shortfall.
Meanwhile, Asian-based competitors like
logged growth for the month, underscoring the U.S. auto industry's continued loss of market share to foreign-based competition.
Detroit has long blamed its decline on cost structures that have been bloated thanks to generous wages and health care benefits protected by the United Auto Workers union. With negotiations on a new master labor contract looming in September, GM and others are poised to win labor cost reductions in order to survive.
In his report, Nesvold estimated that at Tuesday's close of $37.98, GM shares were pricing in 2007 operating earnings of $5 a share. Analysts polled by Thomson Financial are currently forecasting annual earnings of $3 a share for the company, signaling that investors are betting on $2 a share in improved earnings power because of the labor negotiations.
With that level of upside already built into GM shares, Nesvold said it's time to back off the stock, although he still has an "upward bias on the stock." His firm discloses an investment banking relationship with GM, and it owns a stake in the company.
Shares of GM recently were down $1.33, or 3.5%, to $36.65.