Wall Street may be underestimating General Motors

Key Points
  • General Motors' newly refreshed crossover vehicles should offset headwinds facing the company in 2018
  • GM's investments in crossovers in 2018 stand to pay off as the company spends money retooling its factories and launching new trucks.
The 2018 GMC Terrain SUV is on display during the 2017 North American International Auto Show in Detroit, Michigan on January 10, 2017.
Saul Loeb | AFP | Getty Images

Wall Street may be underestimating General Motors, say analysts 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."

GM continues to outperform expectations, said Barclays analyst Brian Johnson in a note sent Tuesday. This is now the 11th straight quarter GM has beaten the consensus, he said.

Despite strong performance, GM shares have not replicated the rise of stocks such as Tesla's. GM shares have risen just under 12 percent in the last 12 months and are trading around $41, whereas Tesla's have risen nearly 30 percent and are trading around $322.

"We hope that the 4Q print is potentially more of a catalyst to spark some momentum," Johnson said. "The EPS result is solidly ahead of expectations, and GM never got credit at Detroit two weeks ago for a strong guide – and indeed, '18 EPS consensus estimates are likely to rise."

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.