Why General Motors Is Ahead Of The Pack, But Still Faces 'Too Many Risks'

• General Motors Company GM shares have been treading a downward path over the last six months and are down 9 percent since April 14.
• Credit Suisse’s Dan Galves maintained a Neutral rating on the company, while raising the price target from $33 to $36.
• Several company specific factors are expected to boost earnings and cash flows, besides mitigating the negative impact of a down-cycle in the auto segment, Galves stated.

Analyst Dan Galves believes that General Motors is poised for robust earnings and cash flow growth, driven by its improved efficiency and the recent strength in Product Development. He added that several company-specific factors may act as “powerful mitigating factors” in case of a down-cycle in the automobile segment.

The EPS estimates for 2015 and 2016 have been raised from $4.50 to $4.55 and from $4.70 to $5.26, respectively.

Galves expects investors to gain confidence in General Motors’ ability to generate free cash flows of $6 billion in 2016. This makes the company’s current pace of buybacks and dividends look sustainable.

In the report Credit Suisse noted, “…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 considers General Motors as a good investment relative to other automakers like Ford Motor Company F in view of its 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.