Citigroup recently added General Motors (GM, Financial) to its focus list and reiterated its buy rating on the company. According to analysts, investors are missing some important catalysts that can likely help General Motors' stock price. In particular, he talked about margin expansion potential from 2016 and 2017 product cycles, accelerated European sales recovery, exit from loss making Russian operations and tailwinds from lower raw material prices.
The company has seen positive commentaries from other analyst as well. Last week, Sterne, Agee & Leach analysts Michael Ward and Ali Faghri reiterated their Buy rating and a $50 price target on the stock citing the Canadian government plans to sell its remaining stake in the company. RBC Capital Markets analyst Joseph Spak also released a positive earnings preview on the company citing positive North American price and mix, and a lower than expected European loss.
It’s not only sell side that is getting bullish on GM off-late. General Motors' stock is also seeing significant interest from fund managers off late. Last quarter, several top fund managers including, Warren Buffett (Trades, Portfolio), George Soros (Trades, Portfolio), Ken Heebner (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and T Boone Pickens (Trades, Portfolio) increased their stake in the company.
The company's business is improving, and it has now been profitable for 20 consecutive quarters. Last quarter, GM's business delivered strong core operating performance with almost all key operating metrics including global deliveries, net income and adjusted EBIT improving. The company's adjusted EBIT was $2.4 billion for the fourth quarter, a $500 million improvement over the prior year. Adjusted EBIT margin was 6.10%, up 140 basis points from the fourth quarter of 2013. Net income to common shareholders was $1.1 billion, up $200 million compared to prior year period and earnings per share improved to $0.66 versus $0.57 of prior year.
Geographically, in North America, the company benefited from record average transaction price driven by Cadillac, new Chervolet, GMC truck and SUV. In China, the company's sales continue to outperform the market while in Europe, Opel's strong operating performance helped the company.
The company is expecting even stronger operating performance in FY2015. For FY2015, management is expecting adjusted EBIT and adjusted EBIT margins to improve in all automotive regions. For FY2016, the company's target is to reach 10% adjusted EBIT margins in North America, profitability in Europe and maintaining strong net margins in China.
The company is passing benefit of this strong performance to its shareholders and intends to raise its common stock dividend 20% to $0.36 per share from second quarter of the current year. This is over and above $5 billion in buy-backs announced earlier this month. At current valuations, the announced buy-backs will reduce GM's share count by 8.2%.
General Motors is trading at 8.22 times FY2015 EPS. The company has an attractive dividend yield of 3.20%. Out of 19 analysts covering the company, 11 are positive and have buy recommendations, six have hold ratings and two have sell ratings. The company's improving performance is attracting attention of sell-side analysts and some of the most successful fund managers. I believe General Motors offers a good value at the current levels.
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