Shares of General Motors rose to their highest level in almost three years Wednesday, after analysts applauded news that the company could be free of U.S. government ownership by the end of the year.
The Treasury Department, in a monthly report to Congress, said Tuesday that it sold $1.2 billion worth of GM stock in October. The report didn’t say how many shares were sold, but it’s likely that the government’s stake in the company is now less than 4 percent.
“We believe the exit will be complete by year-end, which, in our view, is a positive catalyst for the stock,” Sterne Agee analyst Michael Ward wrote in a note to investors Wednesday morning.
Shares rose more than 5 percent, to $38.53, late in the afternoon. That was the highest intraday price since the stock reached $39.48 on Jan. 3, 2011, shortly after GM’s post-bankruptcy return to the stock market with an initial public offering. At the close, the stock pulled back slightly to $38.44, still up 4.9 percent for the day.
Trading volume topped 43 million shares by the close, more than double the normal daily sales.
The government’s exit could clear a path for GM to start paying dividends or buy back more of its stock, Buckingham Research analyst Joseph Amaturo wrote to clients.
Both Amaturo and Ward have $50 price targets and “Buy” ratings on GM stock. The targets are 30 percent higher than the Wednesday closing price. The stock has risen more than 60 percent in the past year, on strong earnings, new product introductions and the prospect of the government’s exit from the business.
Amaturo wrote that GM has the balance sheet to buy back the remaining government shares to end government-imposed limits on executive pay. He also said that in early 2014, GM could start paying a dividend of 80 cents per year, about a 2.2 percent annual yield at the current stock price.
The government got 912 million shares, or a 61 percent stake in GM, in exchange for a $49.5 billion bailout that saved the company from financial ruin during the financial crisis in 2008 and 2009. Treasury gradually has sold off its stake, and a watchdog says the government expects to lose at least $9.7 billion on the bailout.
The Treasury report said the government has recovered roughly $37.2 billion of the $49.5 billion it spent to save GM five years ago. That means taxpayers are still $12.3 billion in the hole.
The report didn’t say how many shares were sold in October or how much stock the government still owns. As of Sept. 26, it owned 101 million shares or about 7 percent of the company.
GM stock traded from $33.92 to $37.99 in October. At the midpoint of that range, the government would have sold about 33.4 million shares for $35.96 each to net $1.2 billion.
That would leave the government with roughly 70 million shares, or about 4 percent of GM. Those shares would have to sell for more than $175 each for the government to break even.