General Motors shares could climb by as much as 35% if it succeeds in selling its European Opel brand and focuses on its healthier markets, Barron’s said on Sunday.
Last week, GM confirmed reports that it was in talks to sell its Opel business to Paris-based PSA Group (PUGOY), which manufactures brands including Peugeot.
If the deal goes through, it could net GM as much as $1 billion in cash, Barron’s says, citing analysts. However, the real value from the sale would come from offloading a money-losing business and refocusing on operations in China, Latin America and North America, it said.
Last year, GM (GM) reported a $257 million operating loss from its Opel unit. Cutting away Opel could gain GM nearly $1 billion in additional annual cash flow, on top of the immediate proceeds from the deal, Barron’s said.
It also said that investors might reward GM’s stock because the sale would demonstrate a willingness by Chief Executive Mary Barra to focus on value-generating business.
Barron’s added that, although GM is a cyclical stock and a downturn in auto sales is widely expected in the near future, its trough earnings per share will be better than many investors expect, perhaps around $3 to $4.
GM shares are trading around $37.