David Welch, Bloomberg
Oct 30, 2017

General Motors Co. analysts are squaring off into two camps, and it’s the pessimists who resonated in Monday’s market.

The automaker fell 2.8 percent to $43.37 at the close in New York, after earlier declining the most since February as at least two analysts began questioning whether its core auto business can sustain profits.

The words of warning came from Goldman Sachs analyst David Tamberrino, who cited a peaking North American auto cycle in general and GM’s pickup truck changeover cycle in particular as he downgraded GM to sell from neutral. Consumer Edge Research analyst 

Jamie Albertine, who didn’t downgrade the stock, signaled that GM’s “strength of narrative” isn’t strong enough to support its premium while U.S. vehicle sales are slipping after a record seven years of growth.

The reality check from Wall Street caps off a period of growth for the automaker, which had climbed 28 percent this year through Friday amid a parade of analyst reports lauding its newfound technology chops. Bullish investors are betting that GM’s test fleet of self-driving electric cars can be converted into a lucrative robotaxi operation worth billions. A dimmer view says that advanced mobility businesses are a long way off and that profits from GM’s core business will suffer as vehicle sales slow in its home market.

“Though we appreciate the strides GM is making to position itself for ‘Auto 2.0,’ the next generation of shared mobility and autonomous driving, we believe the next step for EPS is down, not up,” Albertine wrote in an Oct. 30 note.

GM believes it is instead undervalued, spokesman Tom Henderson said in an email. “We’ve repositioned our core business to be more resilient, and have made key investments to lead the future of personal mobility that will help us develop a healthy business model well into the future,” he wrote.

Tamberrino set a 12-month price target of $32, a dollar lower than its 2010 initial public offering price. Albertine said GM stock is probably fairly valued at $40 a share. Others have been raising their outlooks, with two analysts’ price targets as high as $55, data compiled by Bloomberg show. Longer term, Citigroup Inc.’s Itay Michaeli said GM has a “path to $134” with its strong core auto business complementing a robotaxi head start.

“We think people are too aggressive on the payback,” Albertine said in a phone interview Monday, noting that the market may be off on the timing of GM’s technology moves. “Racing to $50 a share is too generous in awarding a business that may not justify its valuation for seven to 10 years.”

Shorter term, GM may also face headwinds due to its upcoming refresh on pickups, Tamberrino said.

“As GM approaches a 2018 changeover with incremental downtime and given Ford’s recently refreshed F-Series, we expect share shifts to pressure GM,” he wrote in an Oct. 30 note. He said he’d be more positive on the stock if GM further reduces inventory levels and cuts incentive spending.

Thesis Challenged Tamberrino’s note drew a rebuke from at least one bullish money manager whose funds shares of GM, David Kudla, chief executive officer of Mainstay Capital Management LLC. The “Goldman Sachs analysis, thesis and conclusion on GM is wrong,” Kudla wrote in a research note, adding that GM’s cost reductions and emphasis on selling more expensive models is improving margins.

“GM has articulated one of the most comprehensive strategies in terms of flexible mobility and electric vehicles,” Kudla wrote. “They are quarters or even years ahead of many other automakers in this area.”