Wall Street analysts are bullish on automaker General Motors Company (GM). The stock is expected to reach $43.25 in the near term, indicating a potential upside of 13%.
Although the company surpassed the consensus EPS estimate by 19.6% in the last quarter, its revenue missed analyst estimates by 0.4%. The company has raised its fiscal 2022 guidance and expects automotive free cash flow to increase to $10-11 billion from its previous guidance of $7-9 billion. Also, it expects an adjusted EPS of $6.75-$7.25.
GM has set some bold long-term targets where total revenue is expected to grow at a 12% CAGR through 2025, reaching more than $225 billion as EV volumes and software revenue grow. Revenue from EVs is expected to be more than $50 billion in 2025.
GM has plans to build one million EVs in North America by 2025 and to stop selling gasoline-powered vehicles by 2035. GM’s EV plans got a boost after the U.S. Energy Department finalized a $2.50 billion low-cost loan to a joint venture of GM and LG Energy Solution to pay for three lithium-ion battery cell manufacturing facilities.
On December 8, 2022, GM Co-Chief Executive Mary Barra said that she expects U.S. new vehicle sales to rebound next year, with sales of new cars and light trucks to finish at 15 million units. Barra, at the Automotive Press Association event, said, “We are seeing strong demand for our vehicles.”
The stock has declined 34.7% in price year-to-date and 35.8% over the past year to close the last trading session at $38.28.
Here’s what could influence GM’s performance in the upcoming months:
Favorable Recent Developments
On November 17, 2022, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), signed an agreement for the long-term supply of battery-grade nickel sulfate to enhance North American EV supply chains. This deal is expected to help GM reach its target of building 1 million EVs annually in North America in 2025.
In addition, on November 16, 2022, GM and Nel Hydrogen US entered into a joint development agreement. This agreement will merge GM’s fuel cell expertise and NEL’s deep knowledge of electrolyzers, forming cost-efficient renewable hydrogen sources.
Robust Financials
GM’s total net sales and revenue increased 56.4% year-over-year to $41.89 billion for the third quarter ended September 30, 2022. Its adjusted net earnings increased 47.5% year-over-year to $3.28 billion. In addition, its adjusted EPS came in at $2.25, representing an increase of 48% year-over-year.
Favorable Analyst Estimates
GM’s EPS and revenue for the quarter ending December 31, 2022, are expected to increase 23.7% and 21.5% year-over-year to $1.67 and $40.80 billion, respectively. Its EPS for fiscal 2022 is expected to increase 1.1% year-over-year to $7.15.
In addition, its revenue for fiscal 2022 and 2023 is expected to increase 21.4% and 3.8% year-over-year to $154.22 billion and $160.03 billion, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, GM’s 5.36x is 57.6% lower than the 12.64x industry average. Its forward EV/EBIT of 10.64x is 13.8% lower than the 12.34x industry average. Also, the stock's 5.74x forward EV/EBITDA is 37.3% lower than the 9.16x industry average.
Mixed Profitability
In terms of the trailing-12-month net income margin, GM’s 6.57% is 30.2% higher than the 5.05% industry average. Likewise, its 12.24% trailing-12-month EBITDA margin is 10.7% higher than the industry average of 11.05%. Furthermore, the stock’s 10.94% trailing-12-month Capex/Sales is 253.8% higher than the industry average of 3.09%.
On the other hand, GM’s trailing-12-month 13.56% gross profit margin is 61.7% lower than the 35.41% industry average. Likewise, the stock’s 0.59% trailing-12-month asset turnover ratio is 41.7% lower than the industry average of 1.01%.
POWR Ratings Show Promise
GM has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has an A grade for Growth, consistent with its robust financials.
It has a B grade for Value, in sync with its discounted valuation. Also, favorable analyst estimates justify its B grade for Sentiment.
GM is ranked #18 out of 62 stocks in the Auto & Vehicle Manufacturers industry. Click here to access GM’s Momentum, Stability, and Quality ratings.
Bottom Line
GM is trading above its 50-day and 200-day moving averages of $37.28 and $38, respectively, indicating an uptrend. GM has raised its guidance for fiscal 2022. Moreover, the company has set bold long-term targets, with plans to roll out one million EVs by 2025 in North America.
Given its robust financials, favorable analyst estimates, and discounted valuation, it could be wise to buy the stock now.
How Does General Motors Company (GM) Stack up Against Its Peers?
GM has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) or B (Buy) rating: Isuzu Motors Limited (ISUZY), Honda Motor Co., Ltd. (HMC), and Volkswagen AG (VWAGY).
GM shares were trading at $38.31 per share on Monday afternoon, up $0.03 (+0.08%). Year-to-date, GM has declined -34.36%, versus a -15.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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