S&P Raises GM Grade Rating, Investors Lower Share Price
Though investors are not happy with General Motors as of late, Standard & Poor’s is, boosting the automaker’s investment-grade rating from BBB- to BB+.
Detroit Free Press reports the boost — a year after Moody’s raised GM’s status to investment-grade — reflects the automaker’s return to sustained profitability from strong showings in the United States and China. GM’s lending arm, GM Financial, also received an investment-grade rating from S&P.
Alas, investors slapped the automaker with a share price of $32.87 at the closing bell Thursday, the first time shares traded under $33 since April 14. The decline is likely the result of a new round of recalls issued earlier this week, affecting 221,000 Cadillac XTS and Chevrolet Impala models from the 2013 through 2015 model years.
Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.
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"Though investors are not happy with General Motors as of late, Standard & Poor’s is, boosting the automaker’s investment-grade rating from BBB- to BB+." I presume you understand those things are not really directly related and not necessarily contradictory to one another. Theoretically, a bond rating is the likelihood of a bond purchaser to get his investment back (ie, the company will be able to make the bond payments and eventually pay the principle, OR go bust and the assets are worth more than the outstanding liabilities). The stock price is the discounted value of future earnings (subject to much hype and conjecture). So basically the market is (theoretically) saying "we think the company is getting more solvent/less likely to go bust, but they will have lower future sales and/or profits".
My company (insurance) wouldn't do business with anybody with less than an A rating. BB+ isn't too great, but at least they're out of junk status.
Given the drop in the markets yesterday, GM stock just followed the line. Nothing to see here - one day does not make a trend, unless you're a day trader. Commodity prices are deflating across the board, there is worry in the market over Russia/Ukraine, ISIS, and growing global involvement in the Middle East. Oil inventories are increasing dramatically which has investors wondering if the global economy is cooling off. As long as China still has mid to high single digit GDP growth quarter over quarter and the Fed continues to print money, the only place you can put money is in stock - even the strong recovery of real estate values is tailing off. Ya, I read that the super rich are now about 20% cash in their position, a sign they feel the markets are played out. The point being is there is a lot of forces pushing down on the stock market which is showing great resistance at 16,750 - and in a comfortable range of about 16,800 to 17,100 right now. GM's stock value is just a small story in a much bigger picture.
All investors care bout is ever-increasing share price, except for those who like the yo-yo effect where they can make money when the share price travels in both directions. Ratings agencies are just looking at fundamentals, and the improvement is possibly due to the company's ability to limit the financial damage from the recalls. The ignition switch replacement isn't costing that much and is finite, while the restitution plan seems to be working to defuse the bad press and limit the payouts. That's what the ratings agencies like to see - limiting liability.