GM's path to driving its earnings higher may meet a roadblock in China.
General Motors Co. (GM) fell on Tuesday, Sept. 11, after Goldman Sachs forecast a downward trajectory for the automaker's 2019 earnings per share.
Goldman Sachs analyst David Tamberrino reinstated the Detroit-based company with a Neutral rating and $36 price target, saying the path forward for shares is "somewhat murky." Before going Not Rated on GM, the firm has a Sell rating on the stock.
Shares of GM fell 0.6% to $33.67 at 11:40 a.m. New York time.
Tamberrino noted that the stock has been fighting for a re-rate over the past year based on its autonomous vehicle subsidiary and potential new business models. The company's self-driving subsidiary, Cruise, recently received a $2.25 billion investment from Softbank's Vision Fund, which raised the valuation of the business to $11.5 billion.
Despite the progress with Cruise, which is expected to roll out autonomous taxis in 2019, the Goldman analyst sees a murky road for the shares due to a "more challenged" backdrop in North America and growing investor concern about the potential pressure on the China joint venture. Given these challenges, Tamberrino expects a flat-to-down trajectory for the company's earnings and free cash flow next year.
RBC Capital Markets analyst Joseph Spak also acknowledged the concerns with China, noting that GM planned for a softer second half of the year.
"Sounds like [GM is] not planning on volumes getting better the rest of the year, that said, additional China tariffs could be a risk," Spak wrote in a Sept. 11 research note. "But [we] feel confident even if the market is slightly down for the year that guidance is achievable."
Still, Spak believes GM is "executing on what they can control," such as cost savings, and remain "positive" on the company after hosting meetings with Chief Executive Officer Mary Barra and Chief Financial Officer Dhivya Suryadevara.
"Big investor focus is on China and direction of 2019 earnings, and while risk remains, we'd argue expectations are very low with GM trading at less than 3.5x 2019 [price to earnings] ex-Cruise, ex-cash," Spak said.
RBC has an Outperform rating on the stock with a $49 price target.
Meanwhile, Stephen Guilfoyle, president of family-run trading operation Sarge986 LLC and a Real Money contributor, said GM "may be right" for a trade. Guilfoyle outlined some call and put options but cautioned that he does "not want to invest in the manufacture of automobiles long term."
There are 13 Buys, 10 Holds, and one Sell rating on the stock, according to Bloomberg data.
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