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In one of the most historic IPOs of modern times, General Motors
(NYSE: GM) will re-emerge as a publicly traded company tomorrow, just 1 1/2 years after filing for bankruptcy and running to the U.S. government for help.GM
returns to the market as a streamlined version of its former self with the help of government funds and the bankruptcy process, which allowed it to strip billion and billions of debt. GM will also benefit from $45 billion in tax-loss carry-forwards, which could shelter the company from paying corporate taxes for years.With a clean balance sheet and tax-free income, investors have clamored for an allocation of shares in the IPO.
Because of the demand, the IPO size has jumped 30 percent to 478 million shares and the price range has been increased from $26-$29 to $32-$33.
GM has posted net income of approximately $5 billion during the first three quarters of 2010. This reversed a loss of $3.8 billion from July 10, 2009 to December 31, 2009.
The number of common shares that will be outstanding immediately after this offering will 1,500,000,000 shares. So a pricing at $33, would calculate to a market capitalization of $49.5 billion.
The 1,500,000,000 shares doesn't include about 320 million shares issuable upon the exercise of warrants held by MLC. If you include these the shares outstanding move to 1,820,000,000. If these warrants are exercised the market cap would move to $60 billion.
Closest rival Ford (NYSE: F) has a market cap of approximately $58 billion.
GM has said that its fourth quarter profit will be significantly lower level than that of each of the first three quarters, because of a different production mix, new vehicles launch costs (in particular the Chevrolet Cruze and Volt) and higher engineering expenses for future products.
So given this note from GM, Q4 earnings could be $1 billion. This would give GM income of $6 billion on the year, or about $3.30-$4 per share (depending on if you include the warrants)
If GM earns $3.30 per share and the IPO prices at $33, the multiple on the stock would be 10. Earnings of $4/share would equal a multiple of 8.25.
Ford trades at a multiple of 8.2.
Has GM earned a multiple better than Ford? Either GM is overvalued or Ford is undervalued.
In addition, even following the offering the U.S. will own 36.9% of the outstanding shares of common stock, or 33.3% if the over-allotment option is exercised by underwriters. This means future stock offerings are likely, which could mean pressure on the shares.
So should you buy the GM IPO? NO, not at this point.
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