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General Motors Company (GM): Things Are Looking Up, Though Not Enough to Buy In… Yet

By Howard Kim

Over the past six months, shares of General Motors Company (NYSE:GM) have been dropping consistently; since April 2014, the shares have dropped nine percent. Analyst Dan Galves from Credit Suisse weighed in with estimates and predictions on the company.

Yesterday, Galves maintained a Neutral rating on GM’s stock but increased his price target for the stock to $36 (from $33).

According to Galves, GM’s earnings and cash flow are expected to get a boost thanks to several company-specific factors, such as improved efficiency and recent improvements in product development. Furthermore, these factors are expected to mitigate the negative impact of a slowdown in the auto segment.

Galves has forecasted free cash flow of $6.2 billion for the company in 2016. He says, “This makes the company’s current pace of buybacks and dividends look sustainable.” The analyst continues, “With regulatory costs rising late in the cycle and risks from new entrants and transformative technology becoming more front of mind for investors, we don’t see potential for GM’s P/E multiple to rise much above 7x, which implies upside to maybe $38 on our 2017 estimate.”

Galves believes General Motors is a better investment as compared to automakers like Ford. GM, he contents, has “better fixed cost control, better product cadence in 2016 and 2017, material cost savings, local brand exposure in China and a less mature finance company with substantial earnings upside.”

Galves has raised the company’s EPS estimates for 2015 (to $4.55 from $4.50) and for 2016 (to $5.26 from $4.70). Galves has also introduced EPS estimates for 2017 of $5.40.

Dan Galves has rated GM six times since 2014, earning a 75% success rate recommending the stock and a +6.8% average return per GM rating when measured over a one-year horizon and no benchmark.

According to TipRanks, of the nine analysts who have recently rated GM, two have rated it as Buy, six have rated it as Hold, and one has given a Sell rating to the stock. Based on these nine ratings, the average 12-month price target for the stock is $38.71, an upside of 16.84% from current levels.