GM May Have Turned the Corner

DETROIT ( TheStreet) -- Is the tide turning for GM ( GM)?

As the automaker prepares to report earnings Thursday, some of the negatives in its outlook appear to be easing. On Tuesday, GM said April sales rose 26.4%, led by sales of its small, fuel-efficient cars.

GM's stock has risen 12% since April 19, when it sank to a post-IPO price of $29.17. In midday trading Wednesday, shares were dipping 5 cents to $32.94. That's close to the $33 IPO price and not far from the $35 opening price on Nov. 18, the first day of trading.

Without question, U.S. consumers are looking hard at the Detroit Three's offerings when they shop. In April, Ford ( F) reported a 16.4% rise in sales , as the company's small-car lineup made gains even in import-obsessed California.

>>GM: April Sales Led by Small Cars

Meanwhile, Chrysler has emerged as a far-stronger company than anyone expected it to be. It posted first-quarter net income of $116 million, compared with a net loss of $197 million in the same quarter a year earlier, and said its April sales improved by 22%.

Of course, GM still faces questions. In the first quarter, its sales rose 9.9%, prompting IBISWorld Inc analyst Casey Thormahlen to write in a recent report that "while any growth is a positive sign, GM's sales growth is still far slower than what other manufacturers have achieved, causing the company's market share to continue declining."

Thormahlen expects that GM "will display modest revenue growth and a slimmer profit margin" when it reports on Thursday.

Some Wall Street analysts are nevertheless optimistic about the company, saying it will benefit from the decline in Japanese production due to the earthquake and tsunami and from a low valuation relative to Ford. On Tuesday, UBS analyst Colin Langan upgraded GM to a buy and raised his price target to $42, largely on the strength of impending inventory shortages for Japanese manufacturers.

Morgan Stanley analyst Adam Jones estimates GM will earn $1.25 for the quarter, far above consensus, based largely on declining incentives, improvement in Europe and stronger EBIT as production increased.

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"Ford's strong 30% beat vs. consensus in Q1 sure raises the bar for GM," Jonas wrote in a recent report. And Deutsche Bank analyst Rod Lache wrote that "Ford's results suggest we should buy GM," since GM "appears to be trading at a far steeper discount to fair value."

For the first quarter, analysts surveyed by Thomson Reuters are expecting earnings of 91 cents a share on revenue of $35.6 billion. In the fourth quarter of 2009, GM reported a profit of $510 million -- or 31 cents a share -- on revenue of $36.9 billion. Excluding items, earnings were 52 cents a share, beating estimates by 6 cents.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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