Bernstein downgraded General Motors (NYSE:) from Outperform to Market-Perform in a note Monday, citing rising earnings headwinds and potential capital requirements.
According to the firm, GM’s stock has surged by 85% since November 2023, thanks to strong North American performance and aggressive shareholder returns, including a $10 billion accelerated share repurchase (ASR) in late 2023 and an additional $6 billion buyback in mid-2024.
“Our data signals rising earnings headwinds, and we think there is a risk the company will announce additional capital requirements during its October CMD,” said analysts at Bernstein.
Bernstein has reduced its 2025 earnings per share (EPS) forecast for GM by 8% to $8.23, driven by several key factors.
First, the U.S. inventory buildup is expected to create pricing pressures next year. Second, delays in ramping up electric vehicle production and continued losses from GM’s autonomous vehicle division, Cruise, are expected push earnings headwinds into 2025. International business challenges are also adding to the pressure.
Bernstein is particularly concerned about the upcoming October Capital Markets Day (CMD), where GM will likely provide updates on its electric vehicle and software strategies, as well as its Cruise division.
The analysts fear the updates could come with additional capital requirements, which would negatively impact free cash flow (FCF).
Bernstein has slightly increased its capital expenditure forecast to the higher end of GM’s guidance, further reducing its 2025 FCF estimate to $6 billion.
As a result, the firm has lowered its projection for shareholder distributions between 2025 and 2027 by 17% to around $10 billion.
Given the risks of declining earnings and higher investment needs, Bernstein believes GM’s outlook has shifted. The analysts maintain their 6.5x next-twelve-month price-to-earnings multiple, leading to a new target price of $53, down from $54.50.