The Ratings Game: GM’s ‘master class’ in disclosure wins over Wall Street

Analysts at Deutsche Bank did a 180-degree turn on GM on Thursday, upgrading the stock to hold a month after downgrading it, and also boosted their price target on the shares to $30 from $25.

“GM’s strong 1Q performance and forward-looking outlook, in our view demonstrate the benefit from its proactive actions to transform the business, right size its costs and boost profitability,” the analysts, led by Emmanuel Rosner, said in a note.

Related:Ford posts $2 billion first-quarter loss, sees even bigger loss in next quarter

That is likely to leave GM “best positioned to weather challenging 2Q conditions, and yield considerable improvement in profit and free cash flow in 2H and into 2021,” the analysts said. There’s potential for break-even cash flow this year, despite billions in cash burn due to shutdowns put in place to stem the spread of the coronavirus.

“GM reported particularly solid 1Q20 results, reflecting strong execution in mitigating the early impact from Covid shutdowns, including large structural cost reductions, and robust sales of profitable trucks in the quarter,” the analysts said.

Analysts at RBC Capital praised the way GM handled comments and business projections.

“GM delivered a master class in terms (of) disclosure and transparency. The company’s commentary around the specifics of the impacts on the business were detailed and articulate,” RBC Capital‘s Joseph Spak said in a recent note.

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“At the end of the day, these are still assumptions. But the framework allows investors to understand the business and effectively make their own judgments,” he said

GM didn’t provide official guidance, but said if global production is down between 60% and 70% in the second quarter, or the equivalent of annualized sales of between 8 million and 10 million vehicles, its cash burn would total between $7 billion and $9 billion. The company also projected a capital expenditure plan of around $1.5 billion, 25% lower than before.

GM’s results stood “in stark contrast to (Ford Motor Co. F, -0.06% ) last week, analysts at Evercore ISI said in a note post results. GM reported “encouraging margins” and cash burn of about $900 million, “both showing how important it was for GM to get a head start on restructuring entering the crisis,” analyst Chris McNally said.

See also: Tesla surprises Wall Street with first-quarter profit, stock rallies 9%

“We believe GM has a shot at potential positive FY/trough EPS which would be a milestone in this crisis, buoyed by strong (North American) product/mix and accelerated restructuring activities despite the significant COVID headwinds,” he said.

Analysts are still braced for the worst, however, since the second quarter will reflect the complete shutdown of GM’s North America operations through mid-May as compared with the two weeks reflected in the first-quarter results.

Shares of GM have lost 41% in the last 12 months, versus gains of 0.4% for the S&P 500 index SPX, +1.15% and compared with losses around 8% for the Dow Jones Industrial Average. DJIA, +0.91%

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