After being dislodged for the first time in ninety years by Toyota Motor Corporation (TM) in 2021, General Motors Company (GM) wrestled back the top spot in U.S. automobile sales in 2022. GM sold 2.27 million vehicles in 2022, compared to TM’s 2.11 million.
While TM’s sales dropped 9.6% in 2022, GM’s sales rose 2.5% despite high inflation, supply chain issues, and the Fed’s aggressive rate hikes. The Detroit-based automaker reported an increase of 41.4% year-over-year to 623,261 units in vehicle sales in the fourth quarter ended December 31, 2022.
GM’s rise in new vehicle sales last year came at a time when the auto industry’s new vehicle sales are expected to reach their lowest in more than a decade, with estimates ranging from 13.70 million to 13.90 million, marking a decline of 8% to 9% from the prior-year period.
The company’s first Ultium-dedicated assembly plant, Factory Zero in Detroit and Hamtramck, is slated to restart production this month, building the GMC Hummer EV SUV, which is expected to launch in mid-2023. Also, production of the Chevrolet Bolt EV and Bolt EUV will increase to more than 70,000 units this year to meet the strong global demand.
Moreover, the BrightDrop Zevo 600 production is underway at CAMI, and Zevo 400 manufacturing is slated to begin later this year. Regarding ICE vehicles, GM’s new Chevrolet Colorado and GMC Canyon pickup production is expected to start early this year. Also, Chevrolet and GMC are set to launch the 2024 Silverado HD and Sierra HD in Q1.
GM’s executive vice president and president of GM North America, Steve Carlisle, said, “GM is carrying strong momentum in North America into 2023. We see opportunities to grow our EV market share with nine all-electric models on sale, expand our truck leadership with four new Chevrolet and GMC heavy-duty and midsize pickups, and win new customers with the affordable and stylish 2024 Chevrolet Trax, which is the best entry-level vehicle we’ve ever built.”
GM is trading at a discount to its peers. In terms of forward non-GAAP P/E, GM’s 5.19x is 62.7% lower than the 13.91x industry average. Its forward EV/EBIT of 10.51x is 20.5% lower than the 13.23x industry average. Also, the stock's 5.68x forward EV/EBITDA is 40.8% lower than the 9.59x industry average.
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.
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 on GM. The stock is expected to reach $43 in the next 12 months, indicating a potential upside of 15.9%. The stock has gained 14.9% in price over the past three months to close the last trading session at $37.11.
Here’s what could influence GM’s performance in the upcoming months:
Favorable Recent Developments
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.
In addition, on November 16, 2022, GM and Nel Hydrogen U.S. entered a joint development agreement. This agreement will merge GM’s fuel cell expertise and NEL’s deep knowledge of electrolyzers, forming cost-efficient renewable hydrogen sources.
Robust Financials
GM’s total net sales and revenue increased 56.4% year-over-year to $41.89 billion for the third quarter ended September 30, 2022. Its adjusted net earnings increased 47.5% year-over-year to $3.28 billion. In addition, its adjusted EPS came in at $2.25, representing an increase of 48% year-over-year.
Favorable Analyst Estimates
GM’s EPS and revenue for the quarter ended December 31, 2022, are expected to increase 23.9% and 21.2% year-over-year to $1.67 and $40.71 billion, respectively. Its EPS for fiscal 2022 is expected to increase 1.1% year-over-year to $7.15.
In addition, its revenue for fiscal 2022 and 2023 is expected to increase 21.4% and 3.3% year-over-year to $154.19 billion and $159.28 billion, respectively.
Mixed Profitability
In terms of the trailing-12-month net income margin, GM’s 6.57% is 26.9% higher than the 5.18% industry average. Likewise, its 12.24% trailing-12-month EBITDA margin is 10.3% higher than the industry average of 11.09%. Furthermore, the stock’s 10.94% trailing-12-month Capex/Sales is 256.4% higher than the industry average of 3.07%.
On the other hand, GM’s trailing-12-month gross profit margin of 13.56% is 61.9% lower than the 35.58% industry average. Likewise, the stock’s 0.59% trailing-12-month asset turnover ratio is 41.7% lower than the industry average of 1.01%.
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 an A grade for Growth, consistent with its robust financials.
It has a B grade for Value, in sync with its discounted valuation. Also, favorable analyst estimates substantiate its B grade for Sentiment.
GM is ranked #17 out of 63 stocks in the Auto & Vehicle Manufacturers industry. Click here to access GM’s Momentum, Stability, and Quality ratings.
Bottom Line
After reclaiming the top spot from Toyota, GM expects to maintain the strong momentum this year with its new launches and rise in EV and ICE vehicle production to meet the high demand.
GM is trading at a discount to its peers. With industry analysts expecting higher new vehicle sales in 2023, GM is expected to perform strongly due to its strong product pipeline. Moreover, the company has set bold long-term targets, with plans to roll out one million EVs by 2025 in North America.
Given its robust financials, discounted valuation, and favorable analyst estimates, it could be wise to buy the stock now.
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 Volkswagen AG (VWAGY).
GM shares fell $37.11 (-100.00%) in premarket trading Wednesday. Year-to-date, GM has gained 11.09%, versus a 2.39% 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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