If you made the claim at the start of the year that General Motors (NYSE:GM) would be up 29% while Tesla would be down 8%, you might have been laughed at but that’s precisely how the year has played out, so far.
General Motors extensive lineup that includes the Chevrolet, Buick, GMC, Cadillac has come up trumps with both consumers and investors, but will the momentum continue?
Is General Motors a smart investment in the changing automotive industry?
Massive Spike In Earnings Spurs GM Stock Higher
In Q2 2024, General Motors’ reported a revenue increase of 7.2% to $47.97 billion compared with last year. Adjust earnings before interest and taxes were up by 37.2% from the same time period in the previous year, amounting to $4.44 billion.
Net income rose by 14.3% to reach $2.93 billion compared to the year prior while adjusted EPS grew by 60.2% to $3.06 per share. Operating cash flows also increased 8.4% for the year to $7.71 billion.
By the end of the quarter, General Motors had $22.52 billion in cash and cash equivalents, a stark rise from the $18.85 billion at the end of last year.
With revenues and profitability all looking healthy, and the balance sheet reserves on the rise, it’s no surprise that investors were fast to jump on the GM bandwagon. Now the question is whether the good news will persist.
Trucks & SUVs Are Key To GM Growth
Historically, General Motors’ investments in ICE trucks and SUVs have led to good performance with high volumes, market shares, and margins but the company’s EV lineup can’t be overlooked, either.
US deliveries of electric cars rose by an astonishing 40% year-over-year during the fiscal second quarter, which was much higher than the industry’s overall increase rate of 11%. The Cadillac LYRIQ has taken pole position in luxury EVs and now leads in 22 states, including big markets like Florida, Texas, and Michigan.
The GMC Hummer EV and Chevrolet Blazer EV are also building momentum, highlighting market strength. And production of Chevrolet Equinox EVs is ramping up in order to speed up the EV growth cycle.
The Equinox is receiving plaudits generally for having a good combination of distance and performance while still being sold at a reasonable price. Initial deliveries of the car in Q2 were received positively by customers, dealers, and the media alike.
Launch of the Sierra EV soon and new Cadillac models like OPTIQ, Escalade IQ, and CELESTIQ reveal a broad management commitment to taking on Tesla in just about every market segment.
Management has also made strides by partnering with Tesla (NASDAQ:TSLA) so its own customers can gain access to Tesla’s charging network.
Collaborations have extended broadly to increase battery supply too, such as General Motors’ Altium Cells joint venture. The top brass is looking to grow production capabilities over time in order to better match battery chemistry and styles with customer needs for low-cost and long-distance travel.
What Does The Future Hold?
Looking to the future, the bottom line appears quite healthy with adjusted EBIT forecast to range from $13 billion to $15 billion. Diluted EPS is set to fall between $9.50 per share and $10.50 per share range.
Meanwhile free cash flow is estimated to land between $9.5 billion and $11.5 billion. The increase in cash flow guidance is larger than in EBIT, and is driven by production adjustments to meet the market’s demands.
From a valuation perspective, the numbers look quite reasonable too with the forward price-to-earnings multiple at just 4.69x. For those perplexed by how low it is, one reason for the de minimis figure is that net income is slated to fall at the rate of 5.1% annually over the next 5 years.
Similarly, the price-to-sales ratio is somewhat muted at 0.90x, representing a discount of about 24.6% compared to an industry mean of around 1.20x.
Still, the conviction management has in the future of the share price appears high given the management buyback and analysts continue to forecast profitability this year, even if slightly lower.
What Is The Prediction for GM Stock?
GM share price has upside to $56.51 per share according to the consensus of 27 analysts, suggesting 17% upside from present levels.
It’s not a surprise that sentiment has swayed bullish given that revenues have increased at a CAGR of 4.2% over the past five years. Net income and EPS have also grown at CAGRs of 3.9% and 7%, respectively while EBITDA climbed at an annual rate of 4.6%.
As the back half of the year approaches, analysts suggest a possible revenue rise of around 1.7% year-over-year to $44.90 billion for General Motors and EPS is predicted to land at around $2.45 per share, indicating an increase of about 7.3% versus last year’s figures.
In each of the last four quarters, the company has outperformed both revenues and EPS projections, which is a further positive tailwind for investors.
For the fiscal 2024 fourth-quarter, revenues are estimated to rise by 1.4% and hit $43.57 billion while EPS is predicted to rise by 55.9% and reach $1.93 per share.
With a low price-to-earnings multiple, upside to fair value consensus, a bullish year so far, and positive momentum as it relates to new models, consumer demand and production, General Motors appears to be in a good place to continue delivering for shareholders.
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