Morgan Stanley analysts say General Motors (NYSE: GM) will thrive from rising infrastructure spending.
The firm raised its rating for the automaker's shares to overweight from equal-weight, citing the profitability of its pick-up truck franchise.
"We see room for positive earnings revisions for Ford, GM and FCA as investors better understand the dynamic between U.S. pick-up truck sales and the spending/economic outcomes triggered by a potential passage of a US infrastructure bill," analyst Adam Jonas wrote in a note to clients Monday.
"The potential earnings impact from an infrastructure surprise on the OEMs is significant."
Jonas raised his price target to $48.00 from $45.00 for General Motors shares, representing 27% upside to Friday's close. The company's stock is up 2.4% in Monday's pre-market session after the report.
Investors follow Jonas for his bold calls on Tesla and other reports on the future for automakers. His calls have returned an annual gain of 11%, according to TipRanks.com.
The analyst cited Morgan Stanley's potential "bull case" scenario for an infrastructure spending bill worth as much as $2.4 trillion over the next 10 years.
He estimates GM's pick-up truck business will generate 65% of the company's profits this year. The analyst said every five-percentage-point increase in the company's pick-up truck sales drives GM's earnings-per-share higher by more than 10 incremental percentage points.
"We believe that GM's markedly improved valuation post sell-off, higher price target derived from our increased pickup truck business valuation in the SOTP [sum of the parts] and tempered Auto 2.0 expectations merit an upgrade," he wrote.
GM shares advanced 49 cents, or 1.3%, to $38.19 early Monday.
