GM looks to be the preferred U.S. auto maker pick among Wall Street analysts, with about 85% of analysts covering the stock rating it a Buy.
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Investors are bearish about car stocks, but there is opportunity in the sector, according to a new analyst.
Berenberg analyst Adrian Yanoshik launched coverage of the car space Tuesday. “We initiate with a positive bias amid market worries about demand weakness, supply chain disruption and cost inflation,” wrote the analyst.
Those are significant worries, and they are reflected in auto stocks. Coming into Tuesday trading, shares of Ford Motor (ticker: F), General Motors (GM) and Tesla (TSLA) were down more than 30% year to date on average, far worse than the 16% and 11% comparable, respective returns of the S&P 500 and Dow Jones Industrial Average over the same span.
“Despite fears, our work suggests that [auto maker] price-mix strength and deep order books can help generate free cash flow, funding transformations of legacy businesses into the electrified arena,” added Yanoshik.
He sees a role for traditional car companies in an electrified world. He rates GM stock Buy, along with shares of European auto makers BMW (BMW.Germany), Mercedes-Benz (MBG.Germany) and Stellantis (STLA).
GM’s “launch of a new EV crossover and pick-up should drive momentum,” wrote the analyst. He likes the company’s Ultium EV platform and believes GM can maintain strong operating profit margins through its EV transition. His price target for GM stock is $55 a share, about 40% above where the stock recently traded.
Yanoshik is less bullish on Ford and Tesla shares, rating them Hold.
“We expect Tesla to retain its gross and [operating profit] lead over legacy [auto makers] despite new model introduction and the broadening of its supply base,” wrote Yanoshik. But Tesla is an expensive stock, relative to car companies. It trades for almost 70 times estimated 2022 earnings. Ford trades for 7 times.
His Tesla price target is $900 a share, about 11% above its current trading level. His Ford price target is $17 a share. That implies gains of about 25% from recent levels.
For Ford, Yanoshik sees higher capital spending eating into free cash flow in 2023 and 2024. That’s one reason he remains on the sidelines with that name.
With the new rating, 48% of the analysts that cover Ford stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target for Ford stock is above $19 a share.
For Tesla, about 49% of analysts covering its stock rate shares a Hold.
GM looks to be the preferred U.S. auto maker pick among Wall Street analysts, with about 85% of analysts covering the stock rating it a Buy.
Write to Al Root at [email protected]
