JPMorgan likes GM's exit from Europe, predicts rally on Opel sale

(L-R) Carlos Tavares CEO of PSA Peugeot Citroen, Dr Karl-Thomas Neumann CEO of Opel Group and President of General Motors Dan Ammann, shake hands during the 87th International Motor Show at Palexpo in Geneva, Switzerland, March 7, 2017.
Arnd Wiegmann | Reuters

The recent sale of General Motors' European business could substantially improve free cash flow, margins and financial returns for the carmaker, according to analysts at JPMorgan, who reiterated an overweight rating and increased their 12-month price target to $49 from $46.

General Motors on Monday announced the sale of its European Opel/Vauxhall business to PSA Group, the French company that owns Peugeot, for about $2.3 billion.

On the news, GM shares hit a two-year high of $38.55, with the stock up 19 percent over the past six months compared with a return of 9 percent for the S&P 500.

"While the transaction is not expected to close until late 2017, we estimate GM is likely to begin to account for Europe as a discontinued operation as soon as 1Q [first quarter]. Excluding our forecasted GM Europe losses, then, will have an immediate positive impact on earnings," equity analyst Ryan Brinkman wrote in a research note on Tuesday.

The investment bank had previously estimated GM Europe losses of $350 million in 2017 and $229 million in 2018. GM Europe has not made a profit since 1999.

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