Last year, light vehicle sales in the United Sales fell to their lowest level since 2012 amid high inflation and supply chain disruptions. An estimated 13.70 million to 13.90 million new vehicles were sold last year, representing a year-over-year decline of 8% to 9%.
However, General Motors Company (GM) registered a 2.5% year-over-year rise in vehicle sales last year. The company witnessed a 41.4% year-over-year increase in new vehicle sales in the fourth quarter. After getting dethroned from the top spot in 2021, GM reclaimed the title of America’s leading automaker from Toyota Motor Corporation (TM) last year.
GM’s EPS and revenue in the fourth quarter beat the consensus estimates. Its EPS came 25.9% above the estimate, while its revenue beat the consensus estimate by 6.1%.
For fiscal 2023, GM expects its net income attributable to stockholders to be between $8.70 billion to $10.10 billion. It expects adjusted EBIT between $10.50 billion to $12.50 billion, and its adjusted EPS is expected to come between $6 to $7.
In addition, it expects net automotive cash provided by operating activities to come between $16 billion and $20 billion and adjusted automotive free cash flow to come between $5 billion and $7 billion.
GM’s CFO Paul Jacobson said that demand and pricing for GM’s vehicles “remain strong.” He said, “We think the underlying business is going to be pretty consistent with what we saw last year, and I think that’s a slightly more bullish statement than where most of the market is.”
According to Jacobson, the company is looking to execute cost cuts worth $2 billion, with up to a billion of those savings expected in fiscal 2023. In a letter to shareholders, GM’s CEO Mary Barra described 2023 as a breakout year for the company’s Ultium Platform.
The company started the GMC Hummer SUV EV production at its Detroit plant. The launches of the Chevrolet Silverado EV, Blazer EV, and Equinox EV will follow this.
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. Revenue from EVs is expected to be more than $50 billion in 2025. The company’s revenue is expected to double between $275 billion and $315 billion by 2030.
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.
Wall Street analysts are bullish about GM. The stock is expected to reach $49.10 in the next 12 months, indicating a potential upside of 16.9%. The stock has gained 15.1% in price over the past month and 10% over the past nine months to close the last trading session at $42.02.
Here’s what could influence GM’s performance in the upcoming months:
Favorable Recent Developments
On February 9, 2023, GM and GlobalFoundries Inc. (GFS) announced a strategic, long-term agreement to establish a dedicated capacity corridor exclusively for GM’s chip supply. This agreement will help GM reduce the number of unique chips required to power its complex, tech-heavy vehicles.
On January 31, 2023, GM and Lithium Americas Corp. (LAC) announced that they would jointly invest in developing the Thacker Pass mine in Nevada, with GM investing $650 million in LAC. It is the most significant investment by an automaker to produce battery raw materials, and lithium carbonate from Thacker Pass will be used in GM’s Ultium battery cells.
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.
Robust Financials
GM’s revenue increased 28.4% year-over-year to $43.11 for the fourth quarter ended December 31, 2022. Its net income attributable to stockholders increased 14.8% year-over-year to $2 billion. In addition, its adjusted EPS came in at $2.12, representing an increase of 57% from the year-ago period.
GM’s revenue increased 23.4% year-over-year to $156.74 billion for the fiscal year ended December 31, 2022. Its adjusted EBIT increased 1.3% from the prior-year period to $14.47 billion. The company’s adjusted EPS came in at $7.59, representing an increase of 7.4% year-over-year.
Solid Historical Growth
GM’s net income grew at a CAGR of 13.9% over the past three years. Its EBIT grew at a CAGR of 23% over the past three years. In addition, its EPS grew at a CAGR of 10.3% in the same time frame.
Mixed Analyst Estimates
Analysts expect EPS for fiscal 2023 is expected to decline 18.7% year-over-year to $6.17. On the other hand, its EPS for fiscal 2024 is expected to increase 1.1% year-over-year to $6.24. Its revenue for fiscal 2023 and 2024 is expected to increase 3% and 2% year-over-year to $161.44 billion and $164.64 billion, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, GM’s 6.70x is 53.5% lower than the 14.41x industry average. Its forward EV/EBIT of 13.44x is 0.7% lower than the 13.34x industry average. Also, the stock's 7.05x forward EV/EBITDA is 28.8% lower than the 9.89x industry average.
Mixed Profitability
In terms of the trailing-12-month net income margin, GM’s 6.34% is 31.7% higher than the 4.81% industry average. Likewise, its 11.37% trailing-12-month EBITDA margin is 2.5% higher than the industry average of 11.09%. Furthermore, the stock’s 13.52% trailing-12-month Capex/Sales is 325.9% higher than the industry average of 3.17%.
On the other hand, GM’s trailing-12-month gross profit margin of 13.50% is 61.8% lower than the 35.33% industry average. Likewise, the stock’s 0.62x trailing-12-month asset turnover ratio is 38.8% lower than the industry average of 1.01x.
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 a B grade for Growth, consistent with its solid historic and expected growth.
It has a B grade for Value, in sync with its discounted valuation.
GM is ranked #19 out of 61 stocks in the Auto & Vehicle Manufacturers industry. Click here to access GM’s Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
GM had a solid end to fiscal 2022. The company remains confident of maintaining this momentum as demand remains strong. GM has a strong portfolio of EV and ICE vehicles. With a series of new EV launches lined up this year, the company looks well-positioned to cater to the ever-rising demand for EVs and hybrid vehicles.
Moreover, the company is investing heavily and entering into strategic agreements to secure crucial raw materials for EV production. This should drive long-term growth. Given its robust financials and discounted valuation, it could be wise to buy and hold the stock for the long haul.
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), Volkswagen AG (VWAGY), and REV Group, Inc. (REVG).
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GM shares were unchanged in premarket trading Tuesday. Year-to-date, GM has gained 25.15%, versus a 8.31% 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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