Citi: General Motors Is Worth $50/Share After Buyback Reveal

General Motors Company (NYSE: GM) announced Monday morning that it will buy back $5 billion in stock from its shareholders. The program will commence immediately and extend up to 2016. In addition, the company announced plans to boost the quarterly dividend to $0.36 per share, starting on the second quarter of 2015. By the end of 2016, the company will have returned another $5 billion in dividends.

Following GM's announcements, Citi analyst Itay Michaeli raised his price target on the stock from $49 to $50, reiterated a Buy rating and lifted his already above-consensus EPS estimate. The firm maintains its view that "GM shares will trade at premium to Ford by YE'15. With capital allocation in place, GM's earnings and overlooked progress should start to matter far more now."

Citi's 2016 EPS estimate is roughly 10 percent above consensus, but still below GM's targets. "So why is GM trading at 7.7x ‘16 consensus P/E (vs. Ford 8.6x)?" the firm asks.

Below are four reasons why Citi believes "the turning point is now."

• 1) "GM out-executed Ford last year in beating its original core EBIT guidance in the face of macro choppiness, and GM once again confirmed 2015 & 2016 guidance." Thus, Citi continues to see GM as being "better positioned for the 2015 ‘arm wrestle' thanks to GM's greater exposure to truck segments (midsize pickups, SUVs) and lesser regional Yen exposure vs. Ford"
• 2) "GM's aggressive capex and restructuring spend should now turn into positives. The two should give investors better appreciation for: (a) visibility for a robust 2016-17 product cycle anchored by easier YoY comps; (b) GM's lead in key innovations including OnStar/LTE (link), autonomous apps and EVs; and
• (c) visibility for continued improved results at GMIO/GME."
• 3) Citi has argued since January that "GM's progress could revive a normalized EPS valuation approach." They believe "GM's latest update supports a normalized EPS view of $4.80, even with GME & GMIO (ex. China) at breakeven and GMNA & China margins at 8%."
• 4) "Management clearly left more room for further cash deployment in 2016."