General Motors Co. (NYSE: GM) saw its shares hit an all-time high in Tuesday’s session following a strong September sales report, as well as a significant analyst upgrade. Not only has GM hit an all-time high, but Merrill Lynch is taking a very bullish stance on the stock with the highest target on Wall Street.
As we all know, this bull market is more than eight years old, and that carries some implications about analyst ratings. Most blue chip industry leaders with Buy or Outperform ratings are seen to have only about an 8% to 15% upside. However Merrill Lynch seems to be shooting for the moon with this target.
Merrill Lynch upgraded GM to a Buy rating from Neutral and raised its price objective to $57 from $40, implying upside of 35% from the most recent closing price of $42.15. The next highest price target is $53.
According to the firm, GM’s management “gets it,” so Merrill Lynch thinks a higher multiple is deserved because management is proactively pursing expansion opportunities at an accelerating pace, while maintaining the strength of its core truck and global auto business.
Merrill Lynch expanded on these opportunities in its report:
We think GM’s ability to integrate an autonomous electric vehicle into a ride hailing fleet and/or shared fleet, with the overlay of OnStar, puts the company in a unique competitive first mover position. We expect this will become more obvious as the technology is commercialized over time. We believe this will, at the very least, allow GM to defend its current market share in whatever direction the new mobility world morphs into. However, it will more likely drive an offensive push by GM creating a more valuable mobility product for consumers that should ultimately drive shareholder value higher. We’d also highlight that we think there is room and an opportunity for other established automakers to leverage the competitive moat of design, engineering, and assembling highly engineered machines to drive success in the evolving automotive landscape.
The firm gave its investment thesis as follows:
We believe GM’s core business is being managed reasonably well despite fading US/NA cycle, and we estimate the current dividend is relatively secure even in a downturn, while the accelerating focus on future proofing the business with the development of the necessary components of the future of mobility services, including an autonomous EV fleet (Cruise Automation + Bolts), car sharing (Maven), and connectivity (OnStar) may provide material upside in the future. As such, we rate the stock a Buy.
Keep in mind that Merrill Lynch isn’t the only firm that is growing more bullish on GM. Deutsche Bank came out with a recent report, picking the auto giant over Tesla in the growing autonomous vehicle (AV) industry.
Shares of GM were last seen up 2.5% at $43.20, with a consensus analyst price target of $39.52 and a 52-week range of $30.21 to $43.70.