General Motors' Rosy Outlook Stirs Skepticism on Wall Street

(Bloomberg) -- General Motors Co. gained as much as 9.3 percent after its 2019 profit outlook blew past analysts’ estimates. But at least two analysts said the excitement may fade during the course of the day as investors study the upbeat forecast against the backdrop of a slowing global market.

Shares of Ford Motor Co. and Fiat Chrysler Automobiles NV also jumped, with Ford gaining 3 percent and Fiat rising 2.8 percent, as GM’s strong profit helped allay some concerns around the global auto market, even though analysts said some of the assumptions made by GM may not stand up to closer scrutiny.

GM shares were up 8 percent to $37.52 at 1:50 p.m. in New York on Friday.

Goldman Sachs, David Tamberrino

“We think there may be some risk to achieving 2019 guidance as GM’s underlying assumptions are more favorable than our industry views as they essentially expect a flat U.S. SAAR and China sales also in line year over year.”

“The implications for the longer-term free cash flow appears favorable, given the outlined cost-savings and potential impacts to free cash flow by 2021.”

Rated neutral, price target $37 (per Bloomberg data).

Morgan Stanley, Adam Jonas

GM’s guidance a “major surprise vs our expectation of a potential significantly lowered guide.”

Says embedded in the guidance is an extremely supportive macro backdrop of a low 17 million total U.S. market and flat China retail sales.

“Not only did GM not choose to manage expectations lower in a highly uncertain macro climate, but in a major break from the industry they went the other way and raised guidance.”

While it drives a big pop in the stock, Morgan Stanley expects “to see more skeptical investors weigh in and fade the bounce, making GM a challenging story for long-only investors so late in the cycle.”

Rates GM overweight, price target $44.

Buckingham, Joseph Amaturo

GM “just reset the bar higher for earnings and cash flow despite increased macro concerns among investors,” which may make investors less willing to own the stock.

“We would expect the early rally in shares to fade throughout the day, as investors examine the underlying assumptions management used to derive their 2019 full year guidance.”

Rates neutral , price target $34.

Baird, David Leiker

“GM guidance raise shows contrast between U.S. and weaker-than-expected EU/China markets.”

“Should GM be proven correct on U.S. industry sales, 2019 would mark the fifth-consecutive year of plus/minus 17 million units of auto demand. Far from being abnormal or extended, sales plateaus are the ‘norm’: last cycle featured eight-consecutive years of 16.5 million (or more) before the cycle was ended by economic recession.”

“International markets remain a concern – we remain cautious ahead of 2019 guidance announcements.”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Scott Schnipper

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