Morningstar

In Restructuring, GM Moves Toward What It Does Best

We are raising our fair value estimate for the no-moat firm.

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General Motors Co
(GM)

We are raising our GM fair value estimate to $46 after incorporating a major restructuring for

Management expects $6 billion of additional free cash flow by the end of 2020, a substantial amount in our view, with $4.5 billion of that from cost reductions and $1.5 billion from capital expenditure reductions as more global vehicle architectures are rolled out. The company seemed hesitant on an analyst call to say if the $6 billion is gross or net, and only said there's puts and takes on that number based on macroeconomic conditions. Multiple times on the call management stressed more detail will be provided around breakeven levels, GMNA operating margin, and sustainable free cash flow generation at a Jan. 11 investor day in New York. The restructuring will entail pretax charges between $3.0 billion and $3.8 billion, and be mostly special items with the majority recorded in the fourth quarter of 2018 and first quarter of 2019.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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