A Citi Guide Back To 2011-12 With General Motors

• The share price of General Motors Company (NYSE: GM) has declined more than 18 percent year-to-date.
• Citi’s Itay Michaeli has maintained a Buy rating and price target of $50 on General Motors.
• Similar to the 2011-2012 stock selloff, which turned into an attractive buying opportunity, Michaeli believes that General Motors is witnessing selloff as its enters a new product cycle.

“Today GM is entering a 2yr product cycle with a refresh rate > 2013’s, faces potential ~10 percent EPS accretion from OnStar/GMF by ’18, has far better demoed EPS power and M&A courtship,” the Citi report explained.

Following its second IPO, General Motors’ shares fell from the $30s to the $20s, driven by macro concerns in 2011-2012. At that time, Michaeli believes the stock was “impacted by a “perfect storm” of issues: sudden CFO departure, gas prices soar to $4, soft US SAAR, EU debt-crisis & recession, S. America swinging to a loss, lower rates hurting pensions, Japan Tsunami tragedy, limited raw mat relief, $0 buybacks, $0 dividend.”

The difference in the current situation is that commodity tailwinds had not been apparent in 2011-2012 as gas prices surged. In addition, the China-related downside expected in 2016 does not raise questions about “structurally impaired auto demand,” like the EU downturn and weak US SAAR had.

Today, the company dividend yield stands at about 5 percent, while there are earnings levers in the form of OnStar and GMF. In addition, General Motors is currently being wooed for M&A, which wasn’t the case earlier.

The stock had begun to recover by mid-2012, despite ongoing downward EPS revisions, based on investor focus on the company’s turnaround plan for the EU, an upcoming product cycle and other factors. The company is today once again on the verge of entering a two-year product cycle and is looking at potential EPS accretion going forward.