Jefferies Cuts Price Target on GM (GM) Following UAW Contract, Sees as a Positive for Company
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Price: $86.77 +0.44%
Rating Summary:
28 Buy, 13 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
28 Buy, 13 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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Jefferies is maintaining its Hold rating on shares of General Motors (NYSE: GM) and is lowering its price target from $29 to $24 following the results of the UAW negotiations.
Details of the contract are consistent with early rumors and reports. The four year contract is expected to increase labor costs by 1 percent with an impact of $175 million in 2011 and only a impact of $20 million for 2012 and 2013. The company still forecasts a North American break-even point at an industry-wide SAAR of ~10.5 million.
The results from the negotiations include a freeze on base salaries for Tier 1 employees, the suspension of an annual cost of living adjustment, and a permanent elimination of the “JOBs bank.”
Gm and the UAW also agreed that the company will transition all Tier 2 and incoming entry-level workers to a defined contribution pension plan, plus eliminate free legal services for workers.
Another big agreement that was reached states that GM has to pay every UAW employee a $5,000 ratification bonus, plus two $1,000 lump-sum payments over the course of the contract to reflect the cost of living adjustment. The company will also increase the entry-level wage rate by $3/hr for Tier 2 workers.
Jefferies is reiterating its 2011 and 2012 EPS estimates of $4.66 and $3.87.
An analyst at Jefferies comments, " We view the details as a net positive for GM, although a rebound in industry volumes still remains the key driver going forward."
For more ratings news on General Motors click here and for the rating history of General Motors click here.
Shares of General Motors closed at $20.41 yesterday.
Details of the contract are consistent with early rumors and reports. The four year contract is expected to increase labor costs by 1 percent with an impact of $175 million in 2011 and only a impact of $20 million for 2012 and 2013. The company still forecasts a North American break-even point at an industry-wide SAAR of ~10.5 million.
The results from the negotiations include a freeze on base salaries for Tier 1 employees, the suspension of an annual cost of living adjustment, and a permanent elimination of the “JOBs bank.”
Gm and the UAW also agreed that the company will transition all Tier 2 and incoming entry-level workers to a defined contribution pension plan, plus eliminate free legal services for workers.
Another big agreement that was reached states that GM has to pay every UAW employee a $5,000 ratification bonus, plus two $1,000 lump-sum payments over the course of the contract to reflect the cost of living adjustment. The company will also increase the entry-level wage rate by $3/hr for Tier 2 workers.
Jefferies is reiterating its 2011 and 2012 EPS estimates of $4.66 and $3.87.
An analyst at Jefferies comments, " We view the details as a net positive for GM, although a rebound in industry volumes still remains the key driver going forward."
For more ratings news on General Motors click here and for the rating history of General Motors click here.
Shares of General Motors closed at $20.41 yesterday.
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