General Motors (GM) received a price-target increase Thursday from RBC Capital Markets to slightly above the stock’s Wednesday closing price as the firm said a 20% rally in the auto maker’s stock since the end of August may have been warranted.
The new price target is $44 per share, up from $38. This compares with a Wednesday closing price of $43.78 and a fresh record high hit in Wednesday’s intraday session of $43.94. RBC kept its investment rating on the stock at sector perform.
In a note to clients, RBC noted GM’s 20% jump since the end of August, a time in which the Standard & Poor’s 500 index rose 2.7%, comes “as the narrative of GM unlocking tech value has gathered steam.” The firm said its sum-of-the-parts analysis “leaves us believing [the] move may be warranted,” but RBC also finds it “difficult to add to positions now.” It added: “This is not a view on GM’s technology, rather a willingness to pay for a future that has a high degree of uncertainty.”
RBC noted investors are hopeful for a “GM Tech” analyst day to occur later this year or early next year. “Despite no concrete plans, investor expectations are very high for this catalyst,” the firm said.
If such an event occurs, at the very least GM could highlight its tech achievements including OnStar, electric vehicles, autonomous vehicles, and rental-car sharing, RBC said. However, given that the company has already started a communications strategy highlighting these efforts, the firm said it is likely and would be welcomed if GM could provide increased disclosure and transparency on these areas.
As for the stock’s valuation, RBC said it sees total “core” GM as being worth about $48 per share while it values GM’s technology at about $6 per share. After considering cash, pensions and other items, the firm said it arrived at the price target of $44 per share.
The firm noted “the more you want to believe in ‘GM Tech,’ the more you need to trim the ‘core’ GM multiple as one cannibalizes the other.” It added that little consideration appears to have been given to the funding and capitalization of a “GM Tech,” which RBC warned may burn cash for a long time. Finally, RBC cautioned, “‘GM Tech’ profitability is very far out and has a wide range of outcomes.”