GM (GM) Recall Doesn't Reflect Existing Product Quality, Says Goldman Sachs
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Price: $42.37 -0.16%
Rating Summary:
25 Buy, 13 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
Rating Summary:
25 Buy, 13 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 11 | Down: 18 | New: 17
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Shares of GM (NYSE: GM) declined Tuesday after investors learned it will be investigated by a House panel in response to an ignition switch defect and recall.. In addition, the DOJ launched a probe. In the view of Goldman Sachs analyst Patrick Archambault, the DOJ criminal investigation posses the greatest risk.
"The key negative for GM is not the cost of the recall, which we estimate at $40mn based on basic cost parameters given recently by Delphi management. Likewise the fines levied by NHTSA for similar issues have been fairly small in the past (Toyota paid $17mn for its accelerator issues). The most negative impact in our view is the overhang from the DOJ criminal investigation, which could take years to conclude and for which there is little visibility in terms of financial or other impact. We also see the high profile house panel investigation as adverse though potentially more so short term," said Archambault.
"A few facts are important to contextualize this. First GM shares are down 6.7% since the NY Times published a detailed story over the weekend, this is worth $4.2bn of market cap. Second, the two comparable recalls that have been referenced in the press are the 2000 Ford/Firestone recall and the 2010 Toyota recall related to faulty throttle pedals – both of which entailed DoJ and Congressional investigations. A key difference however is that the GM recall relates to older/discontinued product that is associated with the pre-2009 bankruptcy GM under a different management team and in our view bears little read across for existing product quality," he added.
Goldman Sachs has a Conviction Buy on General Motors with a price target of $48.00
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 $35.18 yesterday.
"The key negative for GM is not the cost of the recall, which we estimate at $40mn based on basic cost parameters given recently by Delphi management. Likewise the fines levied by NHTSA for similar issues have been fairly small in the past (Toyota paid $17mn for its accelerator issues). The most negative impact in our view is the overhang from the DOJ criminal investigation, which could take years to conclude and for which there is little visibility in terms of financial or other impact. We also see the high profile house panel investigation as adverse though potentially more so short term," said Archambault.
"A few facts are important to contextualize this. First GM shares are down 6.7% since the NY Times published a detailed story over the weekend, this is worth $4.2bn of market cap. Second, the two comparable recalls that have been referenced in the press are the 2000 Ford/Firestone recall and the 2010 Toyota recall related to faulty throttle pedals – both of which entailed DoJ and Congressional investigations. A key difference however is that the GM recall relates to older/discontinued product that is associated with the pre-2009 bankruptcy GM under a different management team and in our view bears little read across for existing product quality," he added.
Goldman Sachs has a Conviction Buy on General Motors with a price target of $48.00
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 $35.18 yesterday.
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