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.