Goldman Tweaks General Motors' Estimates, Cost Control And Upside Risk

Goldman Sachs’ Patrick Archambault mentioned that General Motors Company’s GM 1Q results “demonstrated solid execution on multiple fronts.”

The analyst maintained a Neutral rating on the company, while raising the price target from $40 to $41.

1Q16 Outperformance

In China, General Motors was able to sustain its marginally at almost flat year on year, driven by significant cost saving and mix, despite pricing headwinds.

Margins improved in South America by over 500 bps, largely driven by pricing, while the North American performance was “more nuanced as pricing was better, though it included the easy comps from a fleet adjustment last year, and the cost performance was neutral despite fixed cost increases,” Archambault stated.

However, the quality of the results were impacted by higher pension income tailwinds from new discount rate rule, which added $200 million to the EBIT, on a quarterly basis.

Estimates Revised

While expressing optimism regarding General Motors’ cash flow outlook, Archambault said that the buyback estimates have been lowered following the company’s announcement of the Cruise Automation acquisition.

The EPS estimates for 2016 and 2018 have been raised, while the EPS estimate for 2017 has been lowered.

“These changes primarily reflect small upward revisions across our broader regional forecasts, slightly offset by a lower share-repo assumption,” the analyst added.