GM shares rise after BMO upgrade on self-driving technology

  • BMO Capital Markets upgrades the stock to outperform from market perform.
  • "We expect a brighter spotlight to be placed on GM Cruise in 2019, leading to a more appropriate value for this business being priced into the shares," says analyst Richard Carlson.
  • Also, he adds, "we believe restructuring efforts will drive better profitability and [free cash flow], as well as improve cyclical resilience."
A Chevrolet Equinox SUV is seen on the production line at SAIC-GM Wuhan Manufacturing Plant on April 7, 2017 in Wuhan, China.
VCG | Getty Images
A Chevrolet Equinox SUV is seen on the production line at SAIC-GM Wuhan Manufacturing Plant on April 7, 2017 in Wuhan, China.

Investors should buy General Motors because its automated car division and restructuring moves will lift the automaker's stock in 2019, BMO Capital Markets said Monday.

Analyst Richard Carlson upgraded GM to outperform from market perform. Carlson also hiked his price target on the stock to $41 a share from $38, representing a 23 percent upside from Friday's close.

Shares of GM rose 1.4 percent Monday.

"We expect a brighter spotlight to be placed on GM Cruise in 2019, leading to a more appropriate value for this business being priced into the shares," Carlson said in a note to clients. Also, "we believe restructuring efforts will drive better profitability and [free cash flow], as well as improve cyclical resilience."

GM acquired Cruise in 2016 in an effort to keep up with other companies in the self-driving car race. In November, GM announced that former co-president Dan Ammann would take over as Cruise CEO this month.

"We believe a key catalyst for GM shares in 2019 could be an increased valuation for GM Cruise being priced into the stock," said Carlson.

Carlson added that GM's restructuring, which includes halting production at several plants and cutting more than 14,000 jobs, should help the stock regain its footing after a dismal 2018. Shares of GM plunged more than 18 percent last year.

"Within the core business, we expect restructuring initiatives to drive higher profit margins and free cash generation, while also improving cyclical resilience, which should also drive a higher multiple," he said.

Correction: This story has been updated to reflect that GM acquired Cruise.

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