American auto major General Motors Company (GM) designs, builds, and sells trucks, crossovers, cars, automobile parts, and accessories and provides software-enabled services and subscriptions globally. The company operates through four segments: GM North America; GM International; Cruise; and GM Financial.
Despite a potential slump in near-term demand due to rising interest rates, the company is focused on expanding its electric vehicle (EV) portfolio to fulfill its goal to stop selling gasoline-powered vehicles by 2035.
Chair and CEO Mary Barra said, “Our multi-brand, multi-segment, multi-price point EV strategy gives us incredible leverage to grow revenue and market share, and we believe our Ultium Platform and vertical integration will allow us to continuously improve battery performance and costs.”
GM has gained 15.1% over the past six months to close the last trading session at $36.15.
Here is what could shape GM’s performance in the near term:
Favorable Recent Developments
On December 7, GM officially launched its Dealer Community Charging Program by installing the first community charging stations in Wisconsin and Michigan. The program initially opened to Chevrolet dealers earlier this year and will expand to Buick, GMC, and Cadillac dealers in January 2023.
Through this program, the company and its dealers are working to improve charging access in underserved communities, thereby ensuring the expansion of the EV market while increasing the penetration of its EV portfolio.
On December 5, GM opened Canada's first full-scale electric-vehicle manufacturing plant to build BrightDrop Zevo fully electric delivery vans. This plant is set to become the new global manufacturing home of BrightDrop’s fully electric delivery vans.
BrightDrop also announced the commencement of commercial operations in Canada, with DHL slated to be the company’s first Canadian customer.
On November 18, GM announced its plan to invest $45 million at its Bedford, Indiana, aluminum die-casting foundry, in addition to the $51 million investment in 2021. This investment will expand the facility's production capacity of EV drive unit castings to support the anticipated strong demand for the Chevrolet Silverado EV and GMC Sierra EV full-size pickups.
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.
These developments are expected to add momentum to the GM’s transition to e-mobility.
Robust Financials
For the fiscal third quarter ended September 30, 2022, GM’s total net sales and revenue increased 56.4% year-over-year to $41.89 billion. During the same period, the company’s adjusted net earnings increased 47.5% year-over-year to $3.28 billion, while its adjusted EPS increased 48% year-over-year to $2.25.
Favorable Analyst Expectations
GM’s revenue and EPS for the fiscal fourth quarter ending December 31, 2022, are expected to increase 21.5% and 23.7% year-over-year to $40.80 billion and $1.67, respectively.
For the entire fiscal year, analysts expect GM’s revenue and EPS to increase 21.4% and 1.1% year-over-year to $154.22 billion and $7.15, respectively.
Moreover, the company has also impressed by surpassing consensus EPS estimates in three of four trailing quarters.
Discounted Valuation
In terms of forward P/E, GM is trading at 5.06x, 59.4% lower than the industry average of 12.46x. The stock’s forward EV/Sales and EV/EBITDA multiples of 0.94 and 5.62 are 14% and 36.4% lower than the industry averages of 1.09 and 8.84, respectively.
In addition, GM’s forward Price/Sales multiple of 0.33 is 60.4% lower than the industry average of 0.84. The company is trading for less than its intrinsic value with a forward Price/Book multiple of 0.77, 70.2% lower than the industry average of 2.58.
Decent Utilization of Capital
GM’s trailing-12-month EBITDA margin of 12.24% is 10.3% higher than the industry average of 11.09%, while its trailing-12-month net income margin of 6.57% is 28.4% higher than the industry average of 5.12%.
Moreover, its trailing-12-month ROCE of 14.45% is 11.7% higher than the industry average of 12.93%.
POWR Ratings Reflect Promising Outlook
GM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GM has an A grade for Growth and a B for sentiment, consistent with its robust financials and favorable analyst expectations. Due to its discounted valuation, it also has a B grade for Value.
GM is ranked #17 of 60 stocks in the Auto & Vehicle Manufacturers industry.
Click here for the additional POWR Ratings for GM’s Momentum, Stability, and Quality.
Bottom Line
Given its solid financials, decent profitability, attractive valuation, and favorable orientation to the rising trend of electric mobility, GM looks well-positioned to survive the economic headwinds and deliver sustained long-term returns. Hence, it might be an opportune occasion to invest in GM.
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 Suzuki Motor Corporation (SZKMY).
GM shares were trading at $35.81 per share on Monday afternoon, down $0.34 (-0.94%). Year-to-date, GM has declined -38.65%, versus a -18.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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