Shares of Ford Motor (F), General Motors (GM), and Stellantis (STLA) all received upgrades to Buy on Wednesday following the recent resolution of the 2023 United Auto Workers strike. Analysts believe that the strike led to a significant undervaluation of these stocks, and now that tentative agreements have been reached with the union, the stocks have the potential to recover.
Upgrade to Buy for Ford and GM
Barclays analyst Dan Levy upgraded shares of Ford and GM from Hold to Buy, citing the attractive valuations. While the price targets remain unchanged at $14 for Ford and $37 for GM, it is important to note that these figures represent a significant upside potential given the current trading prices.
Stocks Trading at Historically Cheap Valuations
Ford stock is currently trading at approximately 5.5 times its estimated 2024 earnings, while GM shares are trading at 4.2 times. Levy described these valuations as “historically cheap” in his research report. Comparatively, Ford stock has typically traded closer to 7 times in recent years, with GM shares trading closer to 6 times.
Catalysts for Stock Rebound
The recent agreements with the UAW are seen as catalysts for the rebound of auto maker stocks. Analysts at Benchmark, RBC, and BofA Securities have also highlighted this trend, noting that shares tend to bounce back after labor deals are settled. However, it is important to recognize that UAW negotiations are just one factor impacting the auto industry. Investor sentiment has also been influenced by higher interest rates and slowing electric vehicle (EV) sales.
Debating the Impact of New Labor Contracts
Investors have been engaged in a debate about whether the new labor contracts, which include wage increases of over 25% over four and a half years, will place auto makers at a disadvantage when competing against nonunion counterparts. This discussion has been ongoing for weeks and continues to shape market sentiment.
In summary, the recent upgrades of Ford, GM, and Stellantis stocks reflect the resolution of the UAW strike and the potential for these companies to recover from their undervalued positions. While there are other factors at play, such as interest rates and EV sales, the labor agreements are seen as positive catalysts for the industry.
The Rising Costs and Potential Gains: A Closer Look at Auto Giants
The automotive industry is no stranger to rising costs, and recent contracts are set to further intensify this issue. With billions of dollars added to annual expenses, industry leaders will need to find ways to offset these costs through productivity gains and pricing strategies. Aiming to combat the impact of years of high inflation, auto giants are forced to take action.
Analyst Insights
Tom Narayan, an analyst from RBC, expressed that the recent developments came as no surprise. He maintains a Buy rating for GM and Stellantis shares, while holding a Hold rating for Ford shares. In light of recent events, there have been no changes to his ratings.
Meanwhile, Bernstein analyst Daniel Roeska made a significant upgrade by shifting his rating for Stellantis shares from Hold to Buy. Furthermore, he revised his price target from $18.50 to $26.40. For Roeska, the conclusion of the strike and labor negotiations served as a catalyst for his decision.
Performance Comparison
Since the beginning of July, Stellantis stock has seen a commendable 7% increase. This outperforms both Ford and GM shares. However, it’s important to note that Stellantis is a global company and is less dependent on North American operations. Additionally, its stock is considerably more affordable, trading at 3.3 times the estimated 2024 earnings.
Analyst Ratings and Price Targets
Roughly 60% of analysts covering GM stock recommend buying shares. This figure exceeds the average Buy-rating ratio for stocks in the S&P 500 by about 5%. Furthermore, the average analyst price target for GM stands at approximately $45 per share.
As for Ford, approximately 43% of analysts covering the stock suggest buying shares. The average analyst price target for Ford hovers around $13.60.
Interestingly, Stellantis receives the highest level of analyst support. However, it’s worth noting that the majority of analysts covering Stellantis operate from Europe. Surpassing 90% in recommended buys, Stellantis shares boast a promising outlook. The average analyst price target for Stellantis shares sits at approximately $25.
Market Movement
During overseas trading, Stellantis shares experienced a modest 0.4% increase. Similarly, GM shares demonstrated a 1.6% gain in U.S. premarket trading, with Ford shares also enjoying a comparable 1.6% increase. Conversely, both S&P 500 and Dow Jones Industrial Average futures saw a decline of approximately 0.3%.
