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GM shares jump on upgrade by widely followed analyst at Morgan Stanley

Key Points
  • Morgan Stanley raises its rating to overweight from equal-weight for General Motors shares, citing the profitability of its pick-up truck franchise.
  • The firm's analyst is optimistic over the company's truck sales if Congress passes an infrastructure spending bill.
2019 GMC Sierra SLT truck is unveiled during an event at Russell Industrial Complex in Detroit, Michigan, on Thursday, March 1, 2018.
Jeff Kowalsky | Bloomberg | Getty Images

General Motors will thrive from rising infrastructure spending, according to Morgan Stanley.

The firm raised its rating for the automaker's shares to overweight from equal weight, citing the profitability of its pick-up trucks.

"We see room for positive earnings revisions for Ford, GM and FCA as investors better understand the dynamic between US pick-up truck sales and the spending/economic outcomes triggered by a potential passage of a US infrastructure bill," analyst Adam Jonas wrote in a note to clients Monday. "The potential earnings impact from an infrastructure surprise on the OEMs is significant."

Jonas raised his price target to $48 from $45 for General Motors shares, representing 27 percent upside to Friday's close. The company's stock on Monday rose modestly to close at $37.83.

Investors follow Jonas for his bold calls on Tesla and other reports on the future for automakers. His calls have returned an annual gain of 11 percent, according to TipRanks.com.

"We're making a call on the cycle being extended due to rebuilding the country … reinvesting in the capital base," Jonas said Monday on CNBC's "Halftime Report."

The analyst cited Morgan Stanley's potential "bull case" scenario for an infrastructure spending bill worth as much as $2.4 trillion over the next 10 years.

He estimates GM's pick-up truck business will generate 65 percent of the company's profits this year. The analyst said every 5 percentage-point increase in the company's pickup truck sales drives GM's earnings-per-share higher by more than 10 incremental percentage points.

"We believe that GM's markedly improved valuation post sell-off, higher price target derived from our increased pickup truck business valuation in the SOTP [sum of the parts] and tempered Auto 2.0 expectations merit an upgrade," he wrote.

GM shares declined 8 percent year to date through Friday compared with the S&P 500's 3 percent drop.

— CNBC's Michael Bloom contributed to this story.

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