The initial public offering of the year, without question, was the return of General Motors to the stock market.þþThe automaker sold more than $23 billion worth of shares last month amid strong demand and now, the newly public company has received additional plaudits from Wall Street.þþSeveral analysts initiated coverage of G.M. on Tuesday with strong recommendations, projecting that G.M. shares would rise at least 21 percent.þþG.M. shares opened Tuesday at $35.36, up 2.2 percent, after the analyst reports were issued. They closed at $35.32.þþSix of seven analysts set price targets of $42 to $45 for G.M. shares, which closed Monday at $34.60, up from the initial offering price of $33. Adam Jonas, an analyst at Morgan Stanley, set a target of $50 — a price that would allow the federal government to recover nearly all of its $50 billion investment in G.M.þþThe government, which already has recouped $23.1 billion from G.M., needs to sell its remaining 500 million common shares at an average price of $53 to break even.þþ“Finally, G.M. can worry about revenues, not costs,” Mr. Jonas, who rated G.M. overweight, wrote in a note to clients. “G.M. has the chance to translate competitive costs and a strong balance sheet into something it hasn’t been able to do in 50 years.”þþMorgan Stanley was one of the lead underwriters of G.M.’s offering, along with JPMorgan. Tuesday was the end of a 40-day quiet period barring analysts at banks involved in the offering from commenting about G.M.þþCitigroup and Bank of America-Merrill Lynch both rated G.M. a buy with a price target of $45. Citigroup said strong new products and position as the largest seller in emerging markets like China and Brazil could allow G.M. to increase annual profits by up to $4 billion.þþ“G.M. may be the most compelling one- to three-year auto turnaround story in our universe,” Citigroup said.þþJP Morgan and Barclays Capital rated G.M. overweight, with targets of $44 and $42, respectively. Credit Suisse and RBC Capital issued outperform ratings and targets of $43 and $42.þþ“Despite a lukewarm post-I.P.O. performance, we believe G.M. offers significant upside potential even with conservative assumptions,” Brian A. Johnson, an analyst at Barclays, wrote.þþChristopher Ceraso at Credit Suisse noted that G.M. was currently trading at a discount to Ford Motor, relative to each company’s earnings before interest, taxes, depreciation, amortization, and pension income. He said 2011 will not be an easy year for G.M. and that more than $20 billion in underfunded pension plans are a concern, but that the company “offers an attractive 12-18 month investment opportunity.”þþG.M. earned $4.2 billion in the first three quarters of 2010, after losing $88 billion in the five years leading up to its June 2009 bankruptcy filing. The $2 billion it earned from July through September was its largest quarterly profit in 11 years.þþDuring investor presentations before the Nov. 18 public offering, G.M.’s chief financial officer, Christopher P. Liddell, said the company could earn up to $19 billion a year during periods of high demand for new vehicles.þþThe offering raised $23 billion and reduced the Treasury Department’s stake to 26 percent, from 61 percent. G.M. repurchased $2.1 billion of preferred stock from the Treasury in mid-December.þþThe other Detroit automaker to go through bankruptcy last year, Chrysler, is aiming for a public offering in the second half of 2011.þþBank of America said the government’s partial ownership of G.M. remained a “headwind” for it, although G.M. and government officials have said the Obama administration does not play any role in directing its operations.þþMr. Jonas, the Morgan Stanley analyst, forecast that G.M., “despite a product line not yet firing on all cylinders,” would generate nearly $40 million in free cash flow a day for the next five years.þþ“Sustainable success beyond 2015 depends on new management and new product,” he wrote.þ
Source: NY Times
