Just as the auto industry was recovering from prolonged chip shortage woes, last year brought new headwinds - including a Chinese slowdown, persistently high inflation, union strikes, and high interest rates. Now, with last week's uninspiring U.S. economic data reviving concerns over a potential hard landing and recession, cyclicals are once again in the hot seat.
That includes GM, which recently sold off by 6.4% on July 23 after the automaker's latest quarterly earnings report landed on Wall Street with a thud.
However, investors should take notice, as General Motors (GM) CFO Paul Jacobson poured more than a million dollars of his own money into buying the dip in the company's stock.
About General Motors
Founded in 1908 and based out of Detroit, General Motors (GM) is one of the world's largest automakers. The company designs, builds, and sells vehicles and vehicle parts, and is home to storied names in the industry such as Chevrolet, Cadillac, GMC, Buick, and more. GM's market cap currently stands at $46.97 billion.
GM stock is up more than 11% on a YTD basis, outperforming the broader S&P 500 Index ($SPX) - just as it has for most of 2024.
GM pays a quarterly dividend of $0.12, which translates to an annual yield of 1.17%. After previously halting its dividend during the COVID-19 pandemic, the company is keeping its payout ratio quite conservative for now, in the single digits.
GM Sells Off After Q2 Earnings
General Motors reported results for the second quarter on July 23, and both revenue and earnings easily outpaced Street estimates.
Revenues of $48 billion rose 7.2% year over year to surpass the consensus estimate by a very healthy $2.65 billion. The top-line beat can be attributed to GM's best quarterly sales since 2020. In Q2, the company sold 696,086 vehicles, up marginally from the prior year. This overall rise in sales was primarily led by the increase in GM’s full-size pickup trucks (229,000, +6% YoY) and electric vehicle sales (21,930, +40% YoY).
EPS popped by 60.2% from the prior year to $3.06, coming in above the consensus estimate of $2.70. This was the fifth consecutive quarter that GM's EPS topped consensus estimates.
Adjusted EBIT surging 37% to $4.4 billion. This growth was fueled by robust demand for pickup trucks and SUVs, particularly the GMC Sierra and Chevrolet Silverado. The Sierra achieved its best first-half sales ever, while the Silverado saw its strongest performance since 2021.
Automotive operating cash flows of $7.7 billion were up 8.4% from the previous year, and overall, the company's cash balance improved to $22.5 billion from $18.9 billion at the start of the year.
Looking ahead, GM raised its full-year adjusted EBIT and free cash flow forecasts for the second time. The company now expects adjusted EBIT between $13 billion and $15 billion for 2024, with free cash flow projected between $9.5 billion to $11.5 billion.
Despite a solid quarter overall, GM sold off sharply as traders eyed a $104 million quarterly loss in China, reversing GM's year-ago profit on the mainland. The automaker is also winding down and restructuring some of its autonomous driving operations, which resulted in more losses.
GM's CFO Buys Stock
On July 26, shortly after the earnings sell-off, CFO Paul Jacobson purchased 25,000 shares of GM at an average price of $44.11. The transaction was worth about $1.1 million total.
Notably, apart from this being Jacobson's first purchase of GM stock in more than a year, this is also the first purchase by any GM insider in 2024. For what it's worth, Jacobson is the only GM insider in the post-COVID era who seems willing to drop seven figures on the stock in a single transaction; he's made similarly sized purchases once each year since 2022.
Jacobson last bought GM in May 2023 at an average price of $32.60, and before that at $38.79 in April 2022. Currently, the shares are trading just shy of $40, and they look attractively valued.
Down about 21% from 52-week highs, GM is priced at 4.12x forward earnings, 0.26x sales, and 2.34x cash flow. That's a remarkable discount to the sector median on every metric, making it easy to understand why a well-placed insider might be tempted to scoop up the shares after a possible earnings overreaction.
What's the Analyst Forecast for GM Stock?
Overall, analysts remain cautiously optimistic about General Motors, which has a consensus rating of “Moderate Buy.” Out of 20 analysts covering the stock, 12 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 6 have a “Hold” rating, and 1 has a “Strong Sell” rating.
The mean target price for GM is $56.54, which denotes an upside potential of about 41.5% from current levels.
