Wolfe upgrades General Motors on favorable risk/reward

Wolfe Research upgraded General Motors (NYSE:) to an Outperform rating (From Peer Perform) and set a 12-month price target on the stock at $42.00 as analysts believe investors have underestimated the earnings and cash flow power that GM will generate over the near- to medium-term.

Wolfe believes that considering GM’s cash deployment strategy, it’s improbable for the company’s shares to stay at their current levels. They expect GM’s 2024 results to benefit from around $1.5 billion in cost reductions, $0.8 billion in year-over-year savings due to non-recurrence of the Bolt battery recall, and a decrease in spending on Cruise by at least a few hundred million dollars.

“We expect these to mitigate higher costs from the UAW/Unifor contracts (-$1.5 bn) as well as deflationary pricing,” wrote analysts in a note.

Wolfe believes the company’s EV pricing could provide a relative advantage as well. This is because analysts believe that GM is one of relatively few OEMs that should be able to meet the stringent battery component/material prerequisites embedded in the IRA’s consumer purchase credit program. GM has secured supplies through POSCO, Livent, Vale, Element 25, and others that should help them meet requirements.

Wolfe also suggests that the pricing of the company’s EVs could give them a competitive edge. Analysts believe GM stands among a limited number of OEMs capable of meeting the strict battery component and material criteria outlined in the IRA’s consumer purchase credit program. GM has established supply agreements with POSCO, Livent, Vale, Element 25, and other entities, which analysts expect will help the company meet requirements.

Shares of GM are up 0.31% in early trading Thursday morning.