J.P. Morgan Bullish Following General Motors Company’s (GM) Strong Second Quarter

Following automaker General Motors Company (NYSE:GM) second-quarter, J.P. Morgan analyst Ryan Brinkman recognizes GM’s performance as a “record operating margin in North America.” Brinkman reiterates a Buy rating with a price target of $43.00, marking a 25% increase from where shares last closed, and anticipates an upside as strong as 34%.

A testament to stellar North America results, GM garnered $1.86 in earnings per share; significantly above Brinkman’s predictions as well as that of the Street for $1.52. The analyst finds a notable record in the fact that the automaker was able to score $3,647 million within a 12.1% margin; a margin Brinkman finds to be “extraordinarily strong.” This margin might have reached its peak, however, as HIS Automotive sees a third quarter deceleration in production, and consequently, Brinkman predicts wholesale deliveries will also follow suit. Meanwhile, the trucks that might be so profitable this year will already have lost their brand new value by 2017.

Even in light of a potential 2016 peak, Brinkman still does not see bad news ahead for GM. The automaker has been known to outdo margin predictions, and has already outclassed expectation; even considering the 2016 margin goals laid out years ago. Brinkman highlights that General Motors was able to earn 10.3% margin (its initial goal was 10%) a year advanced- by 2015. Meanwhile, this present year is set to deliver an almost 10.9% margin, with Brinkman commenting that “the height from which margin is likely to decelerate is that much higher, with the implication that through-the-cycle margin is also higher.”

Brinkman backs his bullishness, believing high margin performance will only yield more growth, arguing, an “even more important part of our bullish thesis is
that normalized and through-the-cycle margins are stronger than most
investors surmise.” As a result, the analyst has increased estimates, forecasting earnings per share for 2016 up from $6.00 to $6.05, with 2017 estimates up from $6.05 to $6.20.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, Ryan Brinkman has earned a ranking of #205 out of 4,077 analysts. He has achieved a 62% success rate thus far with his recommendations, realizing an average annual return of 11.4%.

TipRanks analytics exhibits GM as a Moderate Buy. When considering the 8 analysts polled in the last 3 months about General Motors, 50% rate a Buy with the other 50% maintaining a hold. The 12-month average price target stands at $39.14 with a nearly 22% upside from where the stock is currently trading.

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