DETROIT (AP) — Shares of General Motors Co. slid as much as 5 percent in midday trading Tuesday after an analyst cut his earnings estimates and stock price target.
GM has the same problems as rival Ford, which warned last week that would fall short of full-year profit goals due to warranty and recall costs, foreign exchange differences and economic troubles in Russia and South America, Morgan Stanley analyst Adam Jonas wrote in a note to investors.
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“We believe many elements from Ford’s recent profit warning are applicable to GM’s outlook through 2015 and beyond,” Jonas wrote. “They didn’t warn, so we’re doing it for them.”
Jonas cut his one-year GM stock price target to $27 from $29, and he cut annual earnings estimates for 2015 through 2017 by 9 percent to 24 percent.
GM shares fell $1.57, or 4.7 percent, to $32.18 in midday trading after briefly sinking as low as $32.05. The shares have dropped 21 percent so far this year and are below the $33 initial public offering price from November of 2010. GM has been mired in an ignition switch recall crisis much of the year. The switches in older-model small cars have caused crashes leading to at least 24 deaths.
Jonas sliced his 2014 earnings estimate by 3 cents to $2.76 per share. But he knocked 9 percent off next year’s estimate to $3.62 per share, 11 percent off his 2016 estimate to $3.57 per share and 24 percent off his 2017 estimate to $2.86 per share. He wrote that the U.S. auto cycle is peaking, and GM’s market share isn’t improving enough given its strong new product offerings.
GM’s strategy of consolidating its number of vehicle architectures from 22 in 2010 to four by 2025 is the correct choice, but will require a sacrifice of short-term profitability, Jonas wrote. Auto companies save millions, if not billions, of dollars by building many vehicles off a single architecture.
Jonas conceded that his earnings estimates are well below the consensus of other analysts — 20 percent below in 2015 and 16 percent lower in 2016.
GM spokesman Jim Cain disputed Jonas’ conclusions. “We have a clear purpose, a good plan, we’re confident and we’re focused on execution,” he said in a statement.
