General Motors (GM) May Consider 'More Radical' Strategic Changes, Morgan Stanley Upgrades to Equalweight

(Updated - May 28, 2015 10:25 AM EDT)

Morgan Stanley upgraded General Motors (NYSE: GM) from Underweight to Equalweight with a price target of $28. Analyst Adam Jonas said the company may consider "more radical" strategic changes given investor dissatisfaction. Buybacks aren't working and its time for something different, said the analyst.

"GM’s efforts to return cash to shareholders surpass every other OEM in the world by a significant margin. The company has committed to returning $10bn of cash to investors through a combination of share buyback and dividends by the end of 2016, giving many investors the thing they wanted most from the company – access to its “fortress” balance sheet, with hopes of improved capital discipline. Yet, GM’s share price is relatively flat YTD, further underperforming the broader market and the majority of its US and global automotive peers," said Jonas.

"We see a wide range of potential strategic options that GM could pursue as it tries to best position the enterprise for the challenges and opportunities that lie ahead in the quickly evolving automotive/transportation landscape. Each has its own set of risks, opportunities, and range of outcomes. As an example, under the scenario in which GM pursues a mega-deal with a large automaker, we can envision a bull case of $90 supported by significant cost savings in excess of $1bn/annum yielding 500 bps of margin improvement. However, we would note that we are not in a position to assign any level of likelihood to these scenarios," continued the analyst.

For an analyst ratings summary and ratings history on General Motors click here. For more ratings news on General Motors click here.

Shares of General Motors closed at $35.81 yesterday.

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