General Motors Co. (NYSE: GM) took a key downgrade on Monday. Argus, a truly independent research firm, clear of any traditional brokerage conflicts of interests, downgraded GM to Hold from Buy. While many firms have noted the value proposition, the key note here is about fears of slower sales expectations.

Argus did note that GM recently has shown very strong performance. And the company tried to refute slowing concerns in recent weeks with a larger dividend and a large stock buyback. That being said, Argus is worried that 2016 will be the peak of the current cycle for U.S. auto sales.

The report pointed out that the firm currently expects U.S. light vehicle sales to rise by only 1.1% in 2016. Why this matters is that it follows sales growth of 6.0% in 2015 and that followed sales growth of 7.7% in 2014.

Where the report gets interesting is excluding U.S. sales. Argus now calls for slower growth in international sales, with those sales declining in some emerging markets. Monday’s report now looks for adjusted earnings growth to decline to 9.6% in 2016 — from a sharp 64.6% in 2015.

In early February, GM’s adjusted earnings of $2.3 billion (or $1.39 per share) were up from the prior year’s $1.6 billion (or $1.19 per share). This was handily above the Argus estimate of $1.11 earnings per share (EPS) and was also above the consensus estimate of $1.21. The firm did actually raise its own 2016 estimate to $5.50 from its pre-downgrade target of $5.42. This is to reflect GM’s own guidance and would line up against a consensus EPS estimate of $5.49.

Argus did initiate a 2017 estimate of $5.70 EPS, which implies growth of 4% from the firm’s 2016 estimate. GM’s current 2017 consensus estimate is for GM to post $5.77 in EPS.

The long and short of the matter is that Argus now believes a Hold rating is more appropriate than the previous Buy rating. Argus did acknowledge an aggressive capital allocation plan. This is regarding dividends and buybacks. Argus said:

General Motors announced a new capital allocation program on March 9, 2015. The plan called for the company to return all available free cash flow to shareholders, while maintaining an investment-grade balance sheet with a cash balance of $20 billion. GM also authorized the repurchase of $5 billion of common stock by the end of 2016 and has thus far repurchased $2.9 billion of its stock under this authorization.

On January 13, 2016, General Motors announced a 6% increase in its quarterly dividend to $0.38 per share, or $1.52 annually, beginning in the second quarter. The projected yield is about 5.1%. Our revised dividend estimates are $1.52 for 2016 and $1.60 for 2017. General Motors reinstated its dividend in 2014 after suspending it in 2008.

At the end of 2015, GM’s total debt-to-cap ratio was 61.0%. That rose from 56.4% at the end of 2014, and that ratio is slightly above the peer average. Still, GM’s cash and equivalents totaled $15.2 billion at the end of 2015, down from $19.0 billion at the end of 2014.

What is interesting is just how low the valuations are for the car giant. GM is being valued at just 5.3-times the Argus 2016 EPS estimate and at just 5.1-times the firm’s 2017 estimate. This is under the historical average for other metrics like a book value, sales multiple, or even against cash flows. Argus concluded:

Despite these relatively low multiples and the company’s recent strong performance, we are concerned that 2016 will be the peak year in this cycle for U.S. light vehicle sales, with approximately 18.0 million units. We are also concerned about slower sales in emerging markets, and expect these factors to weigh on growth in the second half of 2016 and in 2017. As such, we are lowering our near-term rating on GM to Hold.

GM’s 52-week trading range is $24.62 to $38.99, and the current consensus price target is almost $38.00.

GM shares were last seen up 0.3% at $29.72 after the downgrade. As a reminder, Argus does not have brokerage clients, so its research reports are sometimes deemed as less impactful than if a firm like Goldman Sachs or Merrill Lynch made the downgrade.

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