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GM shares continue to roll
Embattled automaker gets another upgrade as analysts see large exit of union workers speeding recovery; some cautions remain even with better outlook.
NEW YORK (CNNMoney.com) - Shares of General Motors continued their recent run higher Friday as the embattled automaker saw its second analyst upgrade in a week. Friday it was Prudential upgrading GM to an "overweight" or soft buy rating from its previous neutral rating. Earlier in the week Merrill Lynch had upgraded the automaker to a buy from its earlier neutral rating. Both also upgrade earnings outlook.
The stock was already by far the best performing Dow Jones industrial average component in 2006, with nearly a 44 percent gain through Thursday.GM (up $0.18 to $28.08, Research) gained 0.7 percent Friday. The upgrades both cite reports that between 20,000 to 30,000 members of the United Auto Workers union are set to take one of the separation or early retirement offers from the automaker, which the analysts said should accelerate GM's ability to cut costs as it moves forward with plans to close a dozen plants and facilities and trim 30,000 hourly jobs in North America. "The attrition program is likely to beat GM's target, saving almost $1 a share more than expected," wrote Prudential analyst Michael Bruynesteyn in his note Friday. General Motors spokesman Jerry Dubrowski said GM is not commenting on the acceptance rate by GM employees of the offers, or the target it has on how many workers it needs to accept one of the offers. The offers range from up to $140,000 to leave the company if the employee forfeits the rights to future health care coverage, or more than $100,000 for some employees with close to enough years to retire, accept early retirement, and keep those benefits. Those eligible for retirement are eligible for $35,000 if they chose to do so. "Based on comments by the UAW that as of May 3, 12,400 GM workers had asked to take buyouts, our discussions with industry sources, and the assumption the take rate will accelerate into the June 23 deadline, we estimate that there will be about 30,000 buyouts," wrote Merrill analyst John Murphy. "This would represent a significant acceleration in GM's current restructuring plan." Merrill established a $37 12-month price target for GM shares now, which is about 30 percent above Friday's early prices. Prudential raised its price target to $31 from $23, but that gives only about a 9 percent upside for shares from current levels. Concerns even in upgrades
But the Merrill note warned that "GM faces numerous risks that could derail the company's turnaround," as Murphy cited the risk of a strike at parts supplier Delphi, high gasoline prices and a economic downturn depressing industrywide auto sales. "GM is not out of the woods and persistent market share losses without successful restructuring could put severe pressure on results," he wrote. Prudential's Michael Bruynesteyn also cites strong sales of the new large SUV's that GM introduced earlier this year in his note to clients, but he also had cautions about an investment in GM despite the upgrade. "While we are relatively bullish on the short-term prospects for the shares, we continue to be concerned with the long-term outlook for GM's business," he said. He cited expectations of negative cash flow even with positive operating income and the potential for further market share losses. "We believe that GM's North American cadence of new models, while better than the pace seen in 2002-2004, is not aggressive enough in 2006-2008 to drive share gains or even stabilize share," he wrote. Is the worst over for GM? Click here. For more details on GM's offer to employees, click here.
For a look at GM's plans to close plants and trim costs, click here. |
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