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GM shares are tanking after Goldman downgrades the automaker to sell

Key Points
  • Goldman Sachs downgrades GM to sell.
  • Firm sees '28% downside' over the next 12 months.
  • 'We see a downward inflection in GM earnings, " Goldman's note said.
  • Morgan Stanley downgraded GM to equal-weight last Wednesday.
  • GM shares were up 28% this year through Friday.

General Motors shares dropped in premarket trading Monday after Goldman Sachs downgraded the automaker to a sell rating and predicted a big pullback in the stock ahead.

"Looking ahead into 2018 and given the current valuation level, we see a downward inflection in GM earnings and consequently downgrade shares to sell," wrote analyst David Tamberrino in a note Monday. "Our work on pickup trucks and crossovers suggest that GM likely experiences volume and mix headwinds that exacerbate the cyclical profit headwinds. Combined, we see this driving 2018E EBIT-adjusted down by 22% yoy and compressing overall corporate margins. We see 28% downside to our 12-month price target of $32."

The stock dropped 2.9 percent in early trading Monday.

shares were up 28 percent for 2017 through Friday as investors cheered the divestiture of a European unit and speculation the 109-year-old automaker was making advancements in the areas of autonomous driving in competition with Tesla.

Morgan Stanley analyst Adam Jonas, a widely followed name in the space, last Wednesday.

But Goldman goes one step further, advising clients to actually dump the stock.

"As we continue to believe the North America auto cycle has peaked (17.5mn in 2016) and is set to normalize (to 15.0mn in 2020), we remain cautious on the sector and see mostly downside to shares in our OEM coverage (as more than 100% of profit and FCF is generated in North America)," wrote Tamberrino. "However, we see outsized downside to shares of GM as we expect a negative earnings inflection in 2018."

--With reporting by Michael Bloom

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