Valued at roughly $49 billion by market cap, General Motors (GM) stock has trailed the broader markets by a significant margin in the last decade. Since December 2013, GM shares are down 12%. Even after adjusting for dividends, total returns are just 17%. Comparatively, the S&P 500 Index ($SPX) has roughly tripled in the last 10 years, after accounting for dividends.
Given that past returns don’t matter a lot to current and future investors, let's look ahead to see if General Motors stock can deliver outsized gains in 2024.
General Motors Stock Is On Fire
Shares of General Motors surged almost 12% in a single trading session last month after the company disclosed a share buyback program worth $10 billion. In fact, GM worked with its banking partners to repurchase shares amounting to $6.8 billion in just one week. Given it accounts for 17% of total outstanding shares, Wall Street was pleasantly surprised by GM’s aggressive buyback plans. Further, the company raised its dividend by 33% to $0.12 per share.
GM also reinstated its guidance for 2023, following the resolution of the United Auto Workers (UAW) strike. According to General Motors, the labor stoppage will cost more than $1 billion in operating profits, and it now expects net income between $9.1 billion and $9.7 billion for 2023 - below previous forecasts of between $9.3 billion and $10.7 billion. This indicates GM’s adjusted EPS will range between $7.20 and $7.70 per share for 2023.
Based on the revised guidance, GM trades at 5x forward earnings, which is very cheap - allowing bargain-hunting investors to buy the auto giant at an attractive valuation.
GM also seems to believe its stock is undervalued, looking at its buyback plans - which will also help the company increase earnings per share by almost 30%.
What's Next for GM Stock?
While General Motors is a legacy auto manufacturer, the global shift towards battery-powered vehicles and autonomous cars should act as a key driver of earnings and revenue growth for the company in the next two decades.
Despite its buyback plans, GM has enough room to further enhance shareholder value going forward. For example, GM forecasts adjusted free cash flow between $10.5 billion and $11.5 billion in 2023 after it has allocated resources to capital expenditures. So, it can use the cash to lower balance sheet debt, target accretive acquisitions, increase dividends, and initiate further buybacks.
The automaker currently offers a dividend yield of 1%, which is not too attractive. But GM has a payout ratio of less than 10% and can easily double or triple these payments without stretching its financials too much.
What Is the Target Price for GM?
General Motors is investing heavily to gain traction in the electric vehicle (EV) market. However, its expansion has been delayed due to a challenging macro environment and slowing EV sales. At the current price, GM remains an enticing buy, as the core business is delivering robust profits.
Citigroup analyst Itay Michaeli just raised the target price for GM stock by 5.6% to $95, which is an ambitious 163% premium to current levels. Michaeli, who has a “strong buy” rating on GM, described the late November guidance update as “encouraging,” and "sufficient to support a sustained re-rating of the shares."
The majority of analysts are optimistic on GM, but slightly less so than Citi. Out of the 19 analysts tracking General Motors stock, 10 recommend “strong buy,” two recommend “moderate buy,” six recommend “hold,” and one recommends “strong sell.” The average target price for GM is $48.28, implying expected upside of 33% from here.
