Citi Reiterates Focus List 'Buy' On General Motors Following Q1 Earnings

Citi’s Itay Michaeli believes General Motors Company (NYSE: GM) could become a long-term transformation story.

The analyst reiterated a Buy (Focus List) rating on the company, with a price target of $44.

1Q Results

“The long-held bear narrative argues that GM trades 6x EPS because earnings are poised to collapse or at least prove highly volatile as the U.S. SAAR plateaus and global macro volatility takes its toll. Yet, GM’s past 4 quarters have painted a very different picture,” Michaeli mentioned.

The analyst pointed out that General Motors delivered margins of almost 10 percent in North America, despite pricing pressure in the used car industry, as well as the company’s own product cycle transition.

Losses in South America narrowed year-on-year, despite a 26 percent decline in sales, while China earnings came in flat, with margins of close to 10 percent.

Related Link: Goldman Sachs Maintains Neutral On General Motors, Raises PT To $41.00

“While GM is by no means immune from macro risks, we believe recent earnings performance isn’t just some coincidence and it questions the low valuation multiple,” Michaeli stated.

Long-Term Transformation

Michaeli believes that the consensus expectations do not account for various industry and company specific drivers, including an imbalance in pickup truck supply/demand, General Motors’ product cycle, restructuring, cost flexibility and more.

The analyst also believes that “GM can become a LT transformation story in the shift from low-margin cars to high-margin mobility.”