GM shares are downgraded ahead of earnings. New car prices could fall.

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As of Monday’s open session, GM stock is down more than 40% so far in 2022.

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General Engines

the stock fell ahead of the second quarter results. An analyst sees things getting worse before they get better.

German Bank

Analyst Emmanuel Rosner downgraded GM shares (ticker: GM) to Hold from Buy. Its price target dropped from $57 to $36. That’s a big cut that implies the stock should trade around five times the midpoint of

General Engines

‘ 2022 earnings per share forecast of $7.

One of Rosner’s problems is that he’s not so sure the company will make $7. In his report, Rosner said he saw “earnings risk” in the second half of 2022 “amid potential pricing pressure and the absence of near-term auto insurance.” [catalysts].”

New car prices are at or near record highs, which has boosted earnings for automakers. GM, for example, is expected to earn $7 per share while shipping around 6.3 million vehicles worldwide in 2022. GM earned around $5 per share in 2019 when the company shipped around 7.7 million units .

Limited production was responsible for the price hike. This led to low inventories of new vehicles. Additionally, with lower production, automakers including GM are building more expensive versions of their most popular vehicles. This increases the profits resulting from the mix of vehicles.

But things should return to normal, eventually, which worries Rosner. There are some signs of price weakness. The Manheim Used Vehicle Index, which tracks used car prices in the United States, has fallen for four of the past five months, after setting a record high in January. The prices of used cars and new cars tend to be linked. Car buyers, after all, can choose to buy new or used cars based on the best deal available.

The Manheim index is still about 56% above its 2019 closing level, before the Covid-19 pandemic and before the semiconductor shortages.

GM shares are not falling, however. Shares are up almost 2% in early trading. The


S&P500

and


Dow Jones Industrial Average

are up about 0.8% and 1%, respectively.

The configuration of the stock is one of the reasons. As of Monday’s open session, GM stock is down about 44% year-to-date. Lots of bad news is already reflected in the stocks of most auto stocks. Auto stocks in the Russell 3000 Index are down about 33% year-to-date on average.

With the downgrade, about 77% of analysts covering GM shares are buying. The average buy rating ratio for S&P stocks is around 58%. The average analyst target price is around $55 per share.

Write to Al Root at [email protected]

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