Deutsche Bank On General Motors: No Compelling Drivers For Multiple Expansion


Deutsche Bank took a shot at General Motors (NYSE: GM) by downgrading the stock on disintegrating margin momentum. The stock was cut from Buy to Hold.

“We now believe that even next year, free cash flow may not improve much beyond the $2.2 bn that we now expect for this year,” said Deutsche Bank analyst Rod Lache. “The company will likely continue funding liabilities associated with this year’s recall (i.e. recalls, fines, victim fund, litigation), and we believe that capex is likely to move higher than we previously expected.”

The note was even more bearish and stated that there are no catalysts for multiple expansion.

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“We have previously expressed concerns regarding potentially more difficult conditions for GM in 2015 and beyond as the company moves beyond the peak of their new product cadence, and as competitors introduce competitive products such as Ford’s new F150 (See our April 10, 2014 report),” wrote Lache.

Further, he sees challenging industry headwinds. These include less favorable supply pricing, the possibility of higher than expected regulation and the likelihood for higher interest rates.

Deutsche Bank’s $41 price target was derived with a DCF and equates to 9.2 times forward PE and 3.7 times EV to EBITDAP.

Shares of General Motors were last trading 0.92 percent lower Friday morning, following a four percent sell off Thursday.

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