On Oct 7, 2014, shares of General Motors Co. (GM) tanked to a 52-week low of $31.65. The shares eventually closed at $31.77, with a negative year-to-date return of 20.4%. The 52-week low comes on the heels of Morgan Stanley’s (MS) lowering of price target range to $27–$29 for the automaker with the reiterating of an underweight rating.
What Led to the Fall?
A large contributor to the fall in General Motors’ share price was the slashed price target by Morgan Stanley, which was based on intensifying international pressure due to sluggish economic growth in China and Europe. Morgan Stanley believes that the risks which Ford Motor Co. (F) currently faces will also affect General Motors’ outlook through 2015 and beyond. Ford recently lowered its earnings projection for full-year 2014 to $6 billion from $7–$8 billion owing to weakness in key markets.
Moreover, the number of deaths associated with the faulty ignition switch has been increasing. Kenneth Feinberg, who has been hired by General Motors to assess death claims and deploy funds, is dealing with the claims registered from Aug 1 onwards. Further, he is expected to draw up an updated report on the death claims every Monday.
For quite some time, General Motors has been facing the brunt of the delayed defective ignition switch recall which involves about 2.6 million vehicles. The recalled vehicles mainly include Chevrolet Cobalts and Saturn Ions. The company issued a recall for these vehicles in February this year, although the problem was identified way back in 2001.
In addition, General Motors has been recalling vehicles in large numbers. The automaker has announced 75 recalls covering about 30 million vehicles in North America so far this year. Owing to the series of recalls made, the company recorded a $2.5 billion charge for recall-related repairs in the first half of 2014.
General Motors recorded adjusted earnings of $1.5 billion or 58 cents per share in the second quarter of 2014, missing the Zacks Consensus Estimate of 78 cents per share. In comparison, the company generated earnings of $1.4 billion or 84 cents per share in the second quarter of 2013.
Most of the earnings per share estimates for this Zacks Rank #3 (Hold) company moved downward over the last 60 days. Consequently, the Zacks Consensus Estimate for fiscal 2014 declined 0.7% to $2.77 per share over the same time frame.
A better-ranked automobile stock worth considering is China Automotive Systems Inc. (CAAS), which sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment