Despite a challenging macro environment, automotive manufacturing company General Motors Company (GM) reported strong first-quarter U.S. sales, driven by its strong portfolio of Internal Combustion Engine (ICE) and Electric Vehicles (EV). The company seems positioned to capitalize on the growing EV demand.
Given its solid fundamentals and bright growth prospects, investors could consider buying this auto stock for potential gains. In this article, I have discussed several reasons why investing in this stock could be highly profitable.
This Monday, GM released its first-quarter U.S. sales report. For the first quarter of fiscal 2023, GM’s U.S. sales rose 18% year-over-year to over 600,000 vehicles delivered. ICE vehicles, including GM’s pickups and big SUVs, continue to sell well.
Its industry contemporary, Ford Motor Company (F), followed a day later. GM performed better than its archrival, which reported a 10.1% increase in its first-quarter U.S. sales to 475,906 vehicles.
GM’s sales of the internal combustion Silverado and GMC Sierra full-size pickups were up a combined 9% year-over-year, helped by an impressive 38% increase in sales to commercial fleets, a market long dominated by Ford. Moreover, the company witnessed a significant surge in EV sales this quarter.
Most of the EVs sold during the quarter were Chevrolet Bolts. Also, the company sold nearly 968 of its new Cadillac Lyriq EVs, built on its next-generation Ultium EV architecture. GM has been focused on ramping its production of Utlium-based EVs, with the new all-electric Chevrolet Equinox due later in 2023.
The automotive manufacturing company expects to build 50,000 EVs in the first half of 2023 and “double that” in the year’s second half. Also, its EV sales volumes are projected to rise significantly in 2024 and 2025.
Shares of GM have gained 11% over the past nine months to close the last trading session at $36.27. Moreover, Wall Street analysts expect the stock to hit $52.91 in the next 12 months, indicating a potential upside of 48%.
Here’s what could influence GM’s performance in the upcoming months:
Positive Recent Developments
On February 9, 2023, GM and GlobalFoundries (GFS) entered a strategic, long-term agreement to establish a dedicated capacity corridor exclusively for GM’s chip supply. GFS will manufacture for GM’s key chip suppliers at its advanced semiconductor facility in upstate New York. This agreement supports GM’s strategy to reduce the number of unique chips to needed power complex and tech-laden vehicles.
On January 31, GM and Lithium Americas Corp. (LAC) announced they would jointly invest in developing the Thacker Pass mine in Nevada. Under this agreement, GM would invest $650 million in LAC, representing the largest-ever investment by an automaker to produce battery raw materials. Generated lithium carbonate will be used in GM’s Ultium battery cells.
Solid Financials
GM’s revenue increased 28.4% year-over-year to $43.11 billion for the fourth quarter that ended December 31, 2022. The company’s adjusted EBIT came in at $3.80 billion, up 33.8% year-over-year. Also, its net income attributable to stockholders grew 14.8% year-over-year to $2 billion, and its adjusted EPS was $2.12, an increase of 57% year-over-year.
Strong Earnings Guidance
The company expects its core auto operations to perform at a consistently strong level in 2023. For the full-year 2023, GM expects its net income attributable to stockholders to come in the range of $8.70 billion to $10.10 billion. It expects adjusted EBIT between $10.50 billion and $12.50 billion, and its adjusted EPS is expected to be between $6 to $7.
Furthermore, GM expects its total revenue to grow at a 12% CAGR through 2025, reaching more than $225 billion, driven by EV volume and software revenue growth. Revenue from EVs is projected to be more than $50 billion in 2025.
Favorable Analyst Estimates
Analysts expect GM’s revenue for the second quarter (ending June 2023) to increase 12.1% year-over-year to $40.10 billion. The consensus EPS estimate of $1.60 for the current quarter indicates an improvement of 40.6% year-over-year. Moreover, the company topped the consensus EPS estimate in three of the trailing four quarters.
Furthermore, the company’s revenue and EPS for the fiscal year (ending December 2024) are expected to increase 2% and 1.1% year-over-year to $164.70 billion and $6.21, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, GM’s 5.90x is 58.8% lower than the 14.31x industry average. Likewise, its forward EV/Sales of 0.89x is 20.8% lower than the industry average of 1.12x. Also, the stock’s 6.75x forward EV/EBITDA is 29% lower than the 9.50x industry average.
In addition, in terms of forward Price/Book, the stock is trading at 0.67x, 74.2% lower than the industry average of 2.59x. Its forward Price/Cash Flow multiple of 3.35 is 61.5% lower than the industry average of 8.72.
POWR Ratings Show Promise
It’s no surprise that GM has an overall rating of B, equating to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has a B grade for Value, consistent with its lower-than-industry valuation.
In addition, the stock has a B grade for Growth, in sync with its robust financials and impressive growth history.
GM is ranked #20 out of 57 stocks in the Auto & Vehicle Manufacturers industry. Click here to access GM’s Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
Automotive giant GM’s revenue has increased at a 4.5% CAGR over the past three years. During the same period, the company’s EBITDA and net income have grown at 11.8% and 13.9% CAGRs, respectively. Furthermore, GM’s long-term prospects look promising, driven by increasing demand for its EV and ICE vehicle offerings, strategic investments, and partnerships.
Given its financial strength, solid growth prospects, and low valuation, it could be wise to buy this top auto stock after its solid first-quarter U.S. sales.
How Does General Motors Company (GM) Stack up Against Its Peers?
GM has an overall POWR Rating of B. Check out these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) rating: Stellantis N.V. (STLA), Suzuki Motor Corp. (SZKMY), and Renault (RNLSY).
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GM shares fell $0.21 (-0.59%) in premarket trading Wednesday. Year-to-date, GM has gained 5.86%, versus a 7.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
