By on May 11, 2011

Jefferies is one of those starchy global investment banks and institutional securities firms where a two tone collared shirt is their idea of casual Friday. It is also a place where highly paid financial analysts outsnark the most ruthless TTAC writer, Yesterday, Jefferies sent its “Jefferies institutional clients that include investment managers, insurance companies, hedge funds and pension funds worldwide” a research note that my pal who owns a hedge fund volunteered to share with TTAC readers, as long as we guarantee full anonymity. No problem.

The note is titled “Is GM Turning into a Busted Thesis?” and deals – you guessed it – with the GM stock. H. Peter Nesvold, CFA, and Thomas Fogarty, CFA, both equity analysts at Jefferies, are underwhelmed by the GM share.

“How many large-cap IPOs have you bought over the last six months in which the issuer already missed initial expectations by 30% and were hit with senior management turnover? This is what seems to have happened at GM since the November IPO, yet few analysts seem concerned. We struggle to understand why.”

What’s so hard to understand?

“Think back to the IPO pitch: (1) A restructured GMNA would capitalize upon materially improved pricing; (2) GM had significant earnings leverage to emerging market growth; and (3) a European turnaround was a free option. Less than six months later, the first two seem to have lost steam while the third point was not a major selling point, in our view.”

And GM isn’t delivering on these promises? No, say our certified snarksters:

GMNA and GMIO/GMSA missed underwriters’ initial expectations by 30%, set only five months ago. We pulled the six initiation reports that came out on the “free to publish” date of Dec. 28 from the primary underwriters and compared GM’s 1Q results vs. expectations from less than five months ago. 1Q EPS missed initial estimates by 16%; GMNA missed by 29%; and GMIO/GMSA missed by 34%. What’s more, GMNA missed widely despite the fact that the company overbuilt high-margin T-900 trucks during the quarter.”

Jefferies has a “hold” on the stock. In the starchy analyst trade, that’s an euphemism for “dump.”

PS: The research note is available only to high net worth institutional clients. Sorry, no link.

 

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18 Comments on “GM Share Turns Starchy Analysts Into Snarksters...”


  • avatar
    rnc

    Chasing stock price is what kills companies, GM needs to focus on the long-term, not Q2Q financials and stock prices. Am actually beginning to think that we made be made (close) to whole on this whole thing, bush loan forgivness aside.

  • avatar
    gslippy

    I wasn’t a fan of the bailout, but that analysis seems harsh to me. GM has had only 1 complete quarter since the IPO.

    Do I think it’s the same old GM inside? Probably, but I think they need more than just a few months to prove themselves.

    • 0 avatar
      Jeff Niman

      I don’t think the point they’re making is GM hasn’t turned the company around in one quarter but rather the estimates made a mere 5 months ago for the purpose of selling the IPO were grossly overstated/unrealistic. The value given the company was based on those projections. They don’t appear grounded in reality.

      Full disclosure- I was short leading up to the bankruptcy and I’m short now.

  • avatar
    Jeffer

    Less than two weeks until the lock-up period ends…could be interesting.

  • avatar

    it has really always been about selling cars and they still have no clue how to do that. even worse, they refuse to listen to the people that do and who could save their worthless butts.

  • avatar
    omar

    I bought a significant (dollar value) amount of GM IPO stock and then bought more as the stock dipped to roughly 31. I qualify as a HNWI and I received advice indicating GM was a solid large CAP long term play.

    It just goes to show how different financial advice can be. I agree that most analysts who are looking to see GM transformed within 1-2 years will be disappointed; however, the long term goals of a newly reformed company with a healthy amount of government backing and in place manufacturing and infrastructure is a conservative bet.

    I’m holding

    • 0 avatar
      MikeAR

      Truthfully for one reason I hope you lose every penny. If you had left out government backing I would have been ok and not said a word. But investing because you think the government will help your investment is wrong in every way.

      • 0 avatar
        Xeranar

        Where is the vitrol coming from? Omar was discussing how GM is backed by the government as a good support to the company not as a direct support for his investment. The internet is full of one-offs, I understand that, but as a country we need to protect what little domestic industry we can. Japan, China, and the EU all do the same thing and continue to. Why would America NOT want to do that?

        That being said, I see GM being fine in the long-term, it has newer products coming out and is making a killing in China. The problem for domestics has been too little R&D while shoveling SUVs for the last two decades. Now that GM is substantially reduced in size they may actually be able to get back on the horse and turn around their vehicles. Course that being said, Chevrolet needs a new Impala & the Cruze is just OK. Get a better Cruze, stick with a damn name for more than 5 years and replace the Impala for North America and they have a fighting chance.

    • 0 avatar
      wallstreet

      omar,

      Are you that interesting dude who causes a stir awhile back about needing advise to buy 6 figures ride? I’m glad you are holding because I been shorting this pig since day 1. Now that I really don’t feel that bad about poor soul whom try to hold on to this pig. You can start calling me unpatriotic but free market rules.

  • avatar
    Carlson Fan

    “Do I think it’s the same old GM inside? Probably, but I think they need more than just a few months to prove themselves.”

    Agreed. If you’ve ever witnessed “culture change” in a company you can understand what a truly daunting task it is. I worked for manufacturing company many times smaller than GM and it was a 4-5 year process. It takes a ton of energy and the right leadership. To be profitable over the long run GM needs culture change. I suspect no one currently in the upper ranks of GM management understands that or has the first clue how to do it.

    • 0 avatar
      PenguinBoy

      From the outside, it looks as though Sergio is driving a culture change in Chrysler much more quickly than anything that seems to be happening at GM.

      That said, it would be premature to write of GM. I’m surprised how quickly Ford and Hyundai have managed to turn things around and change their reputations – so there is still hope for GM if the right leader emerges.

      Things change. It wasn’t that long ago that Apple was about to go under, Nortel was going to take over the world, and Toyota made high quality cars with gas pedals that didn’t stick…

  • avatar
    tparkit

    Sounds like one of Jefferies’ competitors got cut in for the sweetmeat, and jefferies didn’t.

    • 0 avatar
      MikeAR

      Jefferies wasn’t one of the too big to fail primary dealers who were given GM underwriting by the Treasury. They can issue honest opinions, the primaries like Goldman and JP Morgan can’t. In this case believe Jefferies.

    • 0 avatar
      Motorhead10

      This is exactly the point – there is still huge sums of money to to be made on placing the remaining stock. The bankers would freak if their sellside analyst were talking down the stock. Banks (and analysts) don’t make money on research, they make it on investment banking. No firm will do banking business with a firm with a SELL or HOLD rating.

      @Jeffer – lock-up period ended 1/16/11
      GM’s lock-up was only 60 days


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