GM Still Riding Strong Truck Demand, But What's Down The Road?

General Motors Company (NYSE: GM) turned in mixed first-quarter earnings as it continues to ride strong light truck demand. Morgan Stanley remains along for the ride right now, but cautious about what’s down the road.

The Analyst

Morgan Stanley’s Adam Jonas reiterated an Overweight rating on GM with a $44 price target.

The Thesis

GM reported adjusted EPS of $1.41, topping the $1.09 Street estimates. Sales of $34.9 billion narrowly missed analysts’ $35.03 billion estimate.

Right now, GM is doing well from strong truck and SUV demand, though Morgan Stanley doesn’t think that will last.

“However, as long as the sun is shining, we look for GM to use the dividends from its US pickup and SUV lineup (however fleeting) to attack structural and purchasing costs to have a chance to hold profits as volume slows and as the China dividend continues to decline,” Jonas wrote in a note.

Electric vehicle investment is going to be needed soon, as well as investment into self-driving cars, which also may not help the stock down the road. Jonas said Morgan Stanley’s revised forecasts call for GM profit to drop by roughly a third by 2022 versus 2018, assuming there’s no recession.

Price Action

GM shares traded around $38.28 Thursday afternoon.

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