General Motors Co., the automaker one-third owned by the U.S. government, rose as much as 3 percent after analysts at JPMorgan Chase & Co. and Barclays PLC recommended buying the shares 40 days after trading began.
Analysts at Bank of America Corp., Morgan Stanley, Citigroup Inc., Royal Bank of Canada and Credit Suisse Group AG also today advised buying shares of Detroit-based GM, which raised more than $20 billion through an initial public offering of common and preferred shares last month.
Chief Executive Officer Dan Akerson, who led GM through the IPO 16 months after it emerged from bankruptcy, has said the automaker can make “significant” profit amid U.S. sales about 30 percent below the 16.8 million unit annual average from 2000 to 2007. Sales may rise to 12.9 million in the U.S. next year, Michelle Krebs, a senior analyst at Edmunds.com, said yesterday in an interview with Pimm Fox on Bloomberg Television.
“As the economy improves, the auto market will pick up and investors are going to boost exposure in the industry,” Walter Todd, who helps manage about $900 million at Greenwood Capital Associates in Greenwood, South Carolina, said in a telephone interview.
GM rose 99 cents, or 2.9 percent, to $35.59 at 1:26 p.m. in New York Stock Exchange composite trading. The shares gained 4.8 percent from the start of trading Nov. 18 through yesterday.
EBIT, Tax Assets
GM is on a path to earn $5.9 billion of earnings before interest and taxes in North America this year, Brian Johnson, an analyst at Barclays Capital in New York, wrote in a research note. EBIT in North America was $4.94 billion through Sept. 30.
Deferred tax assets that stayed with GM through bankruptcy are worth $9.18 per share, wrote Adam Jonas, a New York-based analyst at Morgan Stanley. The assets were accumulated in part as predecessor General Motors Corp. lost $82 billion from 2005 to 2008, and they may allow GM to avoid paying U.S. cash taxes until 2018, Jonas wrote.
Of 14 analysts surveyed by Bloomberg, 10 have a “buy” rating on the shares, and four rate GM “hold.” The average target price is $43.45, according to Bloomberg data.
GM debuted at a “deep discount” to Ford and are trading at 3.9 times earnings before interest, taxes, depreciation, amortization, and pension income, wrote Christopher Ceraso, an analyst at Credit Suisse in New York. Ford trades at a multiple of 5.5 times, he wrote.
Discount to Ford
“We think GM’s current discount to Ford is justified, but that the gap will close materially in 2012 as GM’s product cycle hits its stride and Ford’s shifts to a lower gear,” Ceraso wrote.
GM has said it plans to begin building the Chevrolet Sonic small car next year. That will be followed by the Chevrolet Malibu mid-sized sedan in 2012 and Impala full-size sedan in 2013, according to Himanshu Patel, an analyst at JPMorgan.
The automaker may generate $4.3 billion in free cash flow this year before pension payments, wrote Patel, who is based in New York. At that cash flow, GM could achieve its goal of wiping out debt and pension liabilities by 2013, he said.
GM’s European operations, which lost $1.2 billion on an Ebit basis in three quarters this year, may break even in 2012, wrote Barclays’ Johnson and Patel of JPMorgan. Morgan Stanley’s Jonas said GM Europe may break even in 2011.
“We do not believe that GM Europe is likely to be profitable on a sustainable basis,” Credit Suisse’s Ceraso wrote.
New York Stock Exchange and Financial Industry Regulatory Authority rules prevent analysts at firms that manage IPOs from releasing research for 40 days, according to the Securities and Exchange Commission’s website.
Morgan Stanley, JPMorgan, Bank of America and Citigroup led the IPO that included more than 30 underwriters, according to GM regulatory filings. Barclays, Credit Suisse, Deutsche Bank AG, Goldman Sachs Group Inc. and RBC were also listed in GM’s prospectus.
Trading of GM options rose to almost double the four-week average, with volume for calls to buy the stock changing hands three times as much as puts to sell. The most-active contracts were March $38 calls, which rose 58 percent to 95 cents and accounted for about a fifth of all 49,462 calls traded today.
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