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After Walmart Invests In Cruise, GM Stock Analyst Says AV Unit Worth $10/Share

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After Walmart Invests In Cruise, GM Stock Analyst Says AV Unit Worth $10/Share

Back in January, General Motors Company (NYSE: GM) announced a funding round of $2 billion for its autonomous vehicle segment Cruise that included Microsoft Corporation (NASDAQ: MSFT) and Honda Motor Co (NYSE: HMC).

What Happened: On Thursday, Walmart Inc (NYSE: WMT) was announced as taking part in an increased funding round of $2.75 billion that values Cruise at $30 billion.

“The investment will aid or work towards developing a last-mile delivery ecosystem that’s fast, low-cost and scalable,” Walmart CEO John Furner said in a statement. 

Why It’s Important For General Motors: Morgan Stanley analyst Adam Jonas said the investment by Walmart and valuation helps boost the sum-of-the-parts valuation of General Motors.

“This provides both credibility to GM Cruise as well as support from a diversified group of industry participants that GM Cruise could then leverage as customers/strategic alliances down the line,” Jonas said in a Thursday note. 

The investments also allow GM to share the capex and development costs for the Cruise division, the analyst said. GM Cruise has an annual burn of $1 billion, he said. 

General Motors is worth $80 per share, according to a sum-of-the-parts valuation from Jonas.

Morgan Stanley has an Overweight rating on the stock with an $80 price target. 

The analyst puts a $10-per-share value on GM's 70% ownership of Cruise. That represents 12.5% of the total valuation in his model.

Investors could be missing out on the valuation of Cruise when looking at General Motors shares, Jonas said. 

The analyst has developed some scenarios where Cruise could be worth over 50% of General Motor’s market cap in the medium-term.

“In our opinion, GM and Cruise hold the keys to accident free and emission free transportation — both of which we believe will become table stakes for high scale transportation and logistics operation in the years ahead.”

Related Link: Electric Silverado Pickup To Follow Electric Hummer: What GM Investors Should Know 

Why Its Important For Walmart: The investment by Walmart shows that the company could want a seat in the autonomous and last mile market, Jonas said. 

Last-mile delivery is the costliest part of the fulfillment market, and retailers continue to invest in companies and sign partnerships to gain better control of costs, the Morgan Stanley analyst said. 

“What the last mile looks like is unclear, but it makes sense that a company of Walmart’s scale is already making investments in this future,” he said. 

Walmart has also been involved in deals with Waymo, Gatik and Nuro in the autonomous vehicle space.

"Retailers will have to make a choice down the road whether to use third party fulfillment networks or invest on their own," Jonas said. 

Walmart’s investment in Cruise shows the retailer having value in having their own fulfillment network, the analyst said. 

GM Price Action: GM shares gained 0.22% Thursday, closing at $58.61. 

Photo courtesy of Walmart. 

Latest Ratings for GM

DateFirmActionFromTo
Apr 2021Wells FargoInitiates Coverage OnOverweight
Feb 2021CitigroupMaintainsBuy
Feb 2021Morgan StanleyMaintainsOverweight

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