In this article, I evaluated two auto stocks, General Motors Company (GM) and Honda Motor Co., Ltd. (HMC), to pick the superior stock for 2024. After thoroughly evaluating these stocks, I think HMC might be a superior choice for the reasons discussed in this article.
Rising demand for personal and commercial vehicles, the rise of new technologies like electric and self-driving cars, and the growing awareness of safety and environmental issues among consumers are expected to drive growth in the automotive market in the coming years. The global automotive market is expected to grow at a CAGR of 4.5% until 2030.
Additionally, as concerns over climate change and pollution intensify, consumers and industries are increasingly turning to electric vehicles to reduce their carbon footprint for a greener future. This growing global momentum is expected to propel the EV market into a transformative phase, with investments driving EV adoption across the world.
The global electric vehicle market is expected to grow at a CAGR of 13.7% until 2030.
GM declined 8.9% over the past six months compared to HMC’s 1.1% gain. The stock has declined marginally over the past nine months compared to HMC’s 15.2% gain.
Here are the reasons why I think HMC might perform better in the near term:
Recent Developments
On December 5, 2023, GM announced the opening of the first 17 locations of national electric vehicle fast charging network along with Pilot Travel Centers LLC, and EVgo Inc. (EVGO). Now available in 13 states, the network features an elevated charging experience, providing EV travelers access to the same amenities offered at existing Pilot and Flying J travel center locations.
Recent Financial Results
GM’s revenue increased 5.4% year-over-year to $44.13 billion for the third quarter that ended September 30, 2023. Adjusted EPS increased 1.3% year-over-year to $2.28. However, its adjusted EBIT declined 7.3% year-over-year to $3.56 billion and net income attributable to stockholders declined 16.9% year-over-year to $3.06 billion.
On the contrary, during the fiscal second quarter that ended on September 30, 2023, HMC’s sales revenue increased 16.9% year-over-year to Yen4.98 billion ($34.60 billion). Its profit for the period increased 32.1% year-over-year to Yen270.98 billion ($1.88 billion). Earnings per share attributable to owners of the parents increased 39.4% year-over-year to Yen51.49.
Past And Expected Financial Performance
Over the past three years, GM’s revenue increased at a 14.1% CAGR. Analysts expect GM’s revenue to increase by 7.1% in the year ended December 2023 but decline 9.5% in the fourth quarter ended December 2023. Its EPS is expected to decline 1% in the year ended December 2023 and 47.9% over the fiscal fourth quarter (ended December 2023).
Conversely, HMC’s revenue has increased at a CAGR of 12.4% over the past three years. Its revenue is expected to increase by 426% in the year ending March 2024 and 9.6% in the third quarter ended December 2023. Its EPS is expected to increase 44.3% in the year ending March 2024.
Valuation
GM’s forward EV/EBITDA multiple of 6.34 is higher than HMC’s 6.32. GM’s forward EV/Sales multiple of 0.86x is higher than HMC’s 0.61x.
Thus, HMC is more affordable.
Profitability
GM’s trailing-12-month gross profit margin of 12.31% is lower than HMC’s 20.83%. In addition, GM’s trailing-12-month levered FCF margin of 6.40% is lower than HMC’s 8.42%.
Thus, HMC is more profitable.
POWR Ratings
GM has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, HMC has an overall rating of A, translating to Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has a C grade for Quality. Its trailing-12-month levered FCF margin of 6.40% is 19.7% higher than the industry average of 5.34%. However, its EBITDA margin of 9.70% is 11.1% lower than the industry average of 10.91%.
On the other hand, HMC has a B grade in Quality. Its trailing-12-month levered FCF margin of 8.42% is 57.5% higher than the industry average of 5.34%. Its trailing-12-month EBITDA margin of 12.94% is 18.6% higher than the 10.91% industry average.
Moreover, GM has a C grade for Stability, which is justified by its 24-month beta of 1.49. On the other hand, HMC has an A grade for Stability, which is in sync with its 24-month beta of 0.45.
Among the 52 stocks in the in the Auto & Vehicle Manufacturers industry, GM is ranked #31, while HMC is ranked #7.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Growth, Value, and Sentiment. Get all GM ratings here. Click here to view HMC ratings.
The Winner
The auto industry is seeing growth due to increasing demand for high-end passengers vehicles and industrial expansion. Industry players such as GM and HMC are well-positioned to benefit from these industry tailwinds.
HMC’s higher profitability and lower valuation multiples makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
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HMC shares were trading at $31.81 per share on Friday afternoon, up $0.81 (+2.61%). Year-to-date, HMC has gained 2.91%, versus a -1.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
Comparing General Motors (GM) and Honda Motor (HMC) for 2024 Gain Potential StockNews.com
