Morgan Stanley Names GM Top Pick In U.S. Autos, Ups Price Target To $42

Morgan Stanley analyst Adam Jonas has named General Motors (GM) the firm's top pick in the U.S. auto sector and raised his price target on the stock to $42 from $40 after raising his 2017 EPS forecast to $6.32 from $6.09, which he notes is slightly above the midpoint of the company's guidance of $6.00-$6.50.

Jonas pointed out that "roughly three quarters" of the increase to his price target is based on removing the 25% discount he'd applied to his valuation of GM's deferred tax assets, as he now believes they can remain profitable long enough to fully utilize the DTAs this cycle. Additionally, investor expectations remain "sufficiently low" and he thinks GM is serious about capital discipline, said Jonas, who keeps an Overweight rating on the shares.