Wall Street may be underestimating General Motors, said one analyst after the company beat expectations Tuesday.
Sales of the company’s new crossover vehicles could withstand financial headwinds through 2018, said CFRA analyst Efraim Levy in a note sent Tuesday, after GM delivered better-than-expected results for the fourth quarter of 2017.
Levy raised his rating on the stock from a “buy” to “strong buy,” and has a twelve month price target of $51 on the stock, or a 24 percent gain from where shares are currently trading.
“We think the ’18 consensus forecast of $5.99 is too pessimistic,” said Levy, who forecasts a full year EPS of $6.30. “Crossover vehicle strength should support strong margins despite costs from new truck launches, increased mobility spending, and higher raw materials prices.”
Shares of GM rose 4 percent on Tuesday afternoon.
Crossovers are the fastest growing segment in the market right now, and they tend to deliver higher profits for automakers than cars do. Automakers are rushing to fill dealer lots with the fast-selling vehicles, as Americans continue to turn away from sedans and compact cars.
The launch costs for newly refreshed crossovers, such as the Chevrolet Traverse, GMC Terrain, and Buick Enclave, hurt GM’s bottom line in 2017, Levy told CNBC in an interview.
But if they sell as expected, GM should be able to take some profits this year as it invests in launch costs for upcoming trucks GM bets will deliver similarly high margins.
