Morgan Stanley downgraded General Motors (NYSE:GM) from Overweight to Equal-weight in a note Wednesday, citing limited upside potential.
Despite raising the price target from $46 to $47, analysts believe the stock's recent performance has largely discounted the upside.
"GM's improved capital discipline and execution has driven $10 of EPS, making it the best performing major OEM year-to-date and discounting the upside to our raised target," Morgan Stanley stated.
The analysts highlighted GM's strong recovery from the late 2023 UAW strike, with shares up approximately 90% since November. This rally has positioned GM as one of the top-performing automotive OEM stocks globally this year.
However, Morgan Stanley sees several factors that now balance the risk and reward for GM.
Analysts noted industry price pressure, EV and China market risks, and a more challenging inventory and incentive environment as key headwinds.
They explained that with minimal upside to their revised $47 price target and a relatively 'balanced' risk/reward between their $28 bear case (revised up from $26) and $62 bull case (revised up from $60), they believe GM is more appropriately rated as Equal-weight.
The downgrade reflects concerns about GM's future performance amid these industry challenges. The risks associated with the company's EV strategy and declining profits in China add to the cautious outlook. "Industry price pressure, EV/China risks, and a balanced risk/reward moves us to Equal-weight," the note emphasized.
Morgan Stanley's revised estimates and the acknowledgment of GM's recent achievements underscore a more conservative stance. While recognizing GM's significant strides in capital discipline, analysts see limited near-term gains, prompting the re-rating.