GM Back Above IPO Price With Buffett to Einhorn InvestingTim Higgins
General Motors Co.’s redesigned full-size pickups are bolstering analysts’ confidence that the automaker’s shares will keep climbing after topping their initial public offering price for the first time in two years.
Optimism about Detroit-based GM is growing as the U.S. Treasury sells down its stake, helping facilitate the stock’s possible return to the Standard & Poor’s 500 Index. GM also plans to introduce about 20 new vehicles in the U.S. this year, including profitable Chevrolet Silverado and GMC Sierra pickups, as it seeks to rebound from an 88-year-low market share in 2012.
“The product is a lot better than it used to be,” David Whiston, an equity analyst at Morningstar Inc. in Chicago, said last week in a telephone interview. “I see a lot of reasons to be bullish on GM right now.”
GM rose 0.8 percent to $33.70 at the close in New York. On May 17, it closed above the $33 IPO price for the first time since May 2011. The shares are rated buy by 79 percent of analysts surveyed by Bloomberg and hold by the remaining 21 percent. Fourteen analysts have target prices of higher than $33 within a year, and the average of 20 targets is $37.10, according to data compiled by Bloomberg.
Emmanuel Rosner, an analyst at Credit Agricole Securities in New York, upgraded GM to buy from underperform on May 17 and raised his price target to $40 from $31.
“The automaker is entering a product cycle sweet spot in the USA, getting traction in its Europe turnaround and developing an impressive China growth strategy,” Rosner wrote in a client note.
The rising share price is “validation” that “we’ve got to keep on strategy and keep what we’re doing and good things happen,” Mark Reuss, president of GM North America, told reporters today in Detroit. “Any sort of silver bullets or parlor tricks don’t work in this business.”
GM’s revival has attracted investors such as Warren Buffett’s Berkshire Hathaway Inc. and David Einhorn’s Greenlight Capital Inc.
Berkshire reported purchasing 10 million GM shares in the first quarter of last year and has increased its holding to 25 million shares through the fourth quarter, according to data compiled by Bloomberg. Greenlight reported a stake of 21.2 million shares.
The rising share price may also take some of the pressure off GM in the political debate over whether the U.S. should have provided a $49.5 billion bailout in 2009. Opponents dubbed GM “Government Motors,” and Republican 2012 challenger Mitt Romney criticized President Barack Obama on the issue.
Chief Executive Officer Dan Akerson is pushing toward several mid-decade goals, including boosting North America operating margin to 10 percent, stemming losses in Europe and increasing China sales to 5 million from 2.84 million last year.
The automaker has said it expects modest improvement this year compared with 2012, when it earned $6.19 billion, the third straight profitable year since exiting its 2009 U.S.-backed bankruptcy reorganization.
GM has announced plans to invest about $16 billion on U.S. factories and facilities through 2016, more than the $11 billion it plans to invest in China, which has been the company’s biggest market since 2010.
“We’re fundamentally changing the way people perceive our brands and products,” Akerson told reporters last week in Warren, Michigan, at event to mark the opening of a new data center. “Within the industry, people have seen a new GM in the last three years. They ain’t seen nothing yet.”
Akerson’s optimism comes less than a year after the share price on July 25 reached a record closing low of $18.80.
The shares had tumbled from a closing peak of $38.98 on Jan. 7, 2011, less two months after GM’s November 2010 IPO. The stock first slid below the IPO price in March 2011, dipped below $30 that April before cresting $33 again in early May.
The shares’ low point came the same day GM announced that first-half global sales in 2012 rose 2.9 percent, a slower pace than Toyota Motor Corp.’s 34 percent increase for the period. Those gains helped Toyota reclaim the annual sales lead from GM, as the Toyota City, Japan-based automaker rebounded from natural disasters that roiled production in 2011.
Akerson at about the same time was already under pressure to stem continued losses in Europe. He also faced greater scrutiny after ousting Chief Marketing Officer Joel Ewanick over the cost of a sponsorship deal with the Manchester United soccer team, people familiar with the move said then.
In addition, GM had become an issue in U.S. presidential politics leading up to the November 2012 election, as Republicans used the company as a symbol of Obama’s auto-industry bailout. Representative Paul Ryan during his August speech accepting the GOP vice presidential nomination attacked Obama over the closing of a GM factory in Ryan’s hometown of Janesville, Wisconsin.
The company’s shares began to slowly rebound in August, amid word from Europe that GM was in talks with European labor unions about cutting work hours, which continued as the automaker began discussing its new-product lineup for 2013, including the Silverado, its top-selling vehicle in the U.S.
Full-size pickups are a main source of profit for GM as well as its U.S.-based competitors Ford Motor Co. and Chrysler Group LLC.
In December, GM stock climbed to its highest price in 10 months after the company announced it would spend $5.5 billion to buy back 200 million shares from the U.S. Treasury, and the government said it would sell the rest of its holding within 15 months. As of April 1, the Treasury held 241.7 million shares, a 16.4 percent stake, according to GM’s proxy statement.
After the automaker on May 2 reported a narrower first-quarter loss in Europe than the estimate of three analysts surveyed by Bloomberg, the shares reached their highest since July 2011. GM’s European adjusted loss before interest and taxes was $175 million, compared with $294 million a year earlier, as the region’s economic slump continued to roil sales.
GM’s steps to stem those losses include hiring Karl-Thomas Neumann, a former Volkswagen AG executive, to head its European operations and cutting $500 million more in annual costs during the next three years, after trimming $300 million in spending and 2,600 jobs by the end of 2012.
The automaker wants to reduce capacity in Europe by closing a German factory in Bochum as vehicle demand there shrinks for a sixth straight year. GM also seeks to improve results in the region through an alliance with Paris-based PSA Peugeot Citroen.
Auto-industry sales in the European Union rose in April for the first time since September 2011, adding to signs that the region’s recession may be coming to an end. Registrations of new cars in the EU increased 1.7 percent from a year earlier, even as GM’s total slid 4.1 percent, the Brussels-based European Automobile Manufacturers’ Association said on May 17.
“There are some things that have improved” since the stock’s July low, said Christian Mayes, an analyst at Edward Jones & Co. with a hold rating on GM shares. “You’re seeing more interest from fund managers and that type of investor.”
With the government selling its stake and GM profitable, the automaker may rejoin the S&P 500 within the next year, which is an important milestone and may help boost the stock as index fund managers then need to include it in their portfolios.
On the eve of its June 1, 2009, bankruptcy, GM was dropped from the S&P 500 for the first time since the index was established 57 years ago. It may return as early as this quarter, Bo Huang, an equity-index strategist at Deutsche Bank AG in New York, has said.
“We’ve delivered 13 consecutive profitable quarters, we’re on the cusp of regaining our investment-grade credit rating and before too long I expect we’ll rejoin the S&P 500,” Akerson said May 18 during a commencement speech at the University of Notre Dame, according to his prepared remarks.