Market May Be Undervaluing GM and Ford at Current Prices – Morgan Stanley
2022.07.14 14:15
Market May Be Undervaluing GM and Ford at Current Prices – Morgan Stanley
By Senad Karaahmetovic
Morgan Stanley analyst Adam Jonas slashed the price target on a number of car companies to reflect the rising risk from slowing growth.
Tesla (NASDAQ:TSLA) and General Motors (NYSE:GM) are among stocks that saw their estimates and price targets cut by Jonas to reflect growth slowdown and credit headwinds.
New price targets for Tesla and GM are $1,150 and $42 per share, down from $1,200 and $44, respectively.
“We have made material cuts to our earnings forecast, particularly in FY23 to reflect slower sales growth, deteriorating price/mix, and pressures on the auto credit complex (residuals, spread, provisions). This results in top line estimate cuts in the order of 5-10% across our coverage and EBITDA cuts in the order of 5-15%+, placing our forecasts 5-10%+ below consensus expectations,” Jonas explained in a client note.
However, the analyst is getting “incrementally more constructive” on both GM and Ford (NYSE:F) as “any potential downturn could play out differently than previous downturns.”
Jonas believes investors are undervaluing both GM and F at current valuations. Still, he remained Equal Weight-rated on both.
“At current share prices, we not only believe the EV ‘option’ value has been appropriately compressed to near zero NPV (as it should be), but the market may also be undervaluing the run-off cash flows of the ICE portfolio which is going too far, in our view,” Jonas added.
