Buckingham Research Cuts GM Targets, Sees 10 Percent Downside

In a report published Thursday, Buckingham Research Group analyst Joseph Amaturo maintained a Neutral rating on shares of General Motors Company GM while slashing his price target to $28 from a previous $37 to reflect continued moderation of growth in China and expectations for "deteriorating" pricing in North America. Amaturo said the recent "rout" in Chinese equity markets is likely to impact consumer confidence and spending in the country. In addition, the analyst is "concerned" about the downward pressure these trends, along with continued expansion in industry production capacity, will exert upon pricing. As such, the analyst is now estimating a 10 percent decline in Chinese production volumes and a 2 percent deterioration in Chinese pricing that will be split evenly through the remainder of 2015 and 2016. Switching to the North American market, Amaturo noted that continued weakness in the euro, yen and won also leads to concerns over continued price deterioration in North America. As such, the analyst is now expecting a 3 percent decline in North American pricing in 2016 after previously assuming flat pricing. In addition, the analyst is now expecting the company to post a 7.2 percent North America EBIT margin in 2016, down from his previous 8.0 percent estimate. Estimate Changes Amaturo revised his full year fiscal 2015 and 2016 earnings per share estimates to $3.72 (from a previous $3.88) and $3.11 (from a previous $3.92), respectively. EBITDAPO (Earnings Before Interest, Tax, Depreciation, Amortization and Postretirement) is now estimated to be $14.7 billion in 2015 (down from $14.9 billion) and $12.8 billion in 2016 (down from $14.4 billion). Finally, the analyst's revised Automotive 2015 free cash flow estimate has been lowered to $3.0 billion (from $3.2 billion) in 2015 and also lowered to $1.9 billion (from $3.2 billion) in 2016. Bottom line, even at a $28 price target, shares of General Motors would offer a 5.1 percent dividend yield. While this may seem attractive, the analyst argued that other stocks (such as AT&T Inc. T with a 5.41 percent yield) "carries much less operating leverage" than General Motors.