Shares of General Motors (GM 0.72%) were trading lower on Tuesday morning, after a prominent Wall Street auto analyst cut his bank's rating on the company's stock.
As of 11 a.m. ET, GM's shares were down about 5.1% from Monday's closing price.
In a new note on Tuesday morning, Morgan Stanley analyst Adam Jonas cut the bank's rating on GM to equal weight, from overweight, and lowered its price target to $55, from $75.
Jonas had been quite bullish on GM -- as recently as December, it was his top pick among U.S. auto stocks. But, he wrote, that bullishness relied in part on a "sum-of-the-parts" valuation model that assumed GM would spin off one or more of its business units. He now sees a "less clear path to realization" of his earlier valuation after GM's guidance for 2022 came in below his estimates.
Jonas now expects GM to "remain one holistic company" for at least the next 12 to 18 months as the company builds out its electric vehicle (EV) and connected-car capabilities, and as its self-driving subsidiary Cruise ramps up a new robo-taxi service.
As a result, Jonas wrote, he has shifted his GM valuation to a traditional discounted cash flow model, hence the lower price target and revised rating.
Jonas is a big name. His views get prominent coverage, and they tend to move stocks. While his takes sometimes seem to come from outer space, I believe he's a smart analyst who genuinely understands the nuances of the auto business.
That said, as auto investors who have been around a while know, he tends to revise his worldview frequently. Put another way, he may not be the best guide for long-term-minded investors.
I do think that he's right to say that GM isn't likely to spin off Cruise or its EV business anytime soon. But I also think that the spinoff idea (which he promoted) probably wasn't ever seriously considered by CEO Mary Barra. After all, as I'm sure she would hasten to point out, GM is depending on its high-profit internal-combustion business to help fund its transition to electric vehicles.
My take is that at least for the next couple of years, the company is stronger in its current form, without a breakup or spinoffs. While that might disappoint anyone hoping to cash in soon, I think it's the right path to build long-term value.