GM Stock Takes Off

Interview: WWJ AutoBeat Reporter Jeff Gilbert talks with analyst George Magliano from IHS Automotive about GM's strong performance.

General Motors stock beginning the new year on a high note, as it gets a boost from an analyst's "Buy" rating. The GM stock, which spend much of December hovering around it's $33 a share IPO price, has now soared 15 per cent above that level.

Goldman Sachs analyst Patrick Archambault setting a 12 month price target for GM of $43 per share, and telling investors that he expects further upward revisions.

"GM, for the first time in several decades, has a cost and capital structure that matches the global revenue opportunity that lies before it,'' Archambault wrote. The company, he said, is in good position to take advantage of cyclical opportunities in North America and growth in Brazil, Russia, China, India and other emerging markets.

Archambault estimated earnings per share at $4.15 for 2011 and $5.06 for 2012. He expects GM's earnings before taxes and interest margin to rise from an estimated 4 percent last year to 7 percent by 2013, which he said was a level of profitability GM has not seen since the 1970s.

The increase is driven by fixed cost reductions that came from the company's 2009 bankruptcy restructuring, more use of GM's remaining factories and an opportunity for increased global automobile demand, Archambault wrote.

Risk factors, he wrote, include the timing of a restructuring of GM's money-losing Opel operations in Europe.

"Y'know, they've done the right things" said George Magliano, an analyst with IHS Automotive. "Maybe, it took the government to push them into bankruptcy and out. That really helped a lot. They got their costs way down. They're revitalizing their profit offerings."

Magliano telling WWJ AutoBeat Reporter Jeff Gilbert that GM and other automakers have learned how to make money with low car sales. He says the expectation is that an increase in sales will lead to much higher profits.

"It was perfect timing for them to go out with that stock offering," he said. "You can see that what's happened is they are doing well with it."

As we approach the beginning of the North American International Auto Show, Magliano says the mood of the entire industry is much more upbeat than it was a last year, and radically different than it was just two years ago.

"I was just thinking about the Detroit Auto Show a couple of years ago. It was like a morgue there. But, the whole industry is much more optimistic."

The Associated Press contributed to this story.