Why We Expect General Motors’ Share Price To Hover Near Its Current Price Level In 2018

-8.16%
Downside
45.27
Market
41.57
Trefis
GM: General Motors logo
GM
General Motors

General Motors’ (NYSE: GM) 2018 earnings guidance, released at the beginning of the year, did not imply hefty growth expectations for the company in 2018. We believe the same reasoning will limit the potential growth of the company’s stock price throughout 2018. We expect the stock price of the company to hover at the current price level based on our estimates. Lower expected revenue, especially from the company’s North American segment, is expected to put pressure on the company’s bottom line. Additionally, an increased pressure from rising input costs would limit the potential of the company to improve its margins in 2018.

Our price estimate of $37.60 for the company is based on an expected EBITDA of $20.3 billion for 2018 and a  P/EBITDA multiple of 2.7. We expect 1.46 billion shares to be outstanding. In case you have a different perspective, you can modify our base case assumptions and arrive at your own fair price estimate for the company by using our interactive model.

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We expect the company to report a total revenue of $144 billion in 2018 and an EBITDA margin of 14%, lower than that of 2017 due to high-cost pressure with rising input costs. This gives us an estimated EBITDA of $20.3 billion for 2018, 9% lower than the 2017 level.

The total revenue of $144 billion for the company is arrived at by taking into account the company’s regional revenue from the company’s North American, International (ex-China), and Chinese division. We also account for the company’s vehicle lease and loan division separately while computing its total revenue. We expect the company’s revenue from North America to decline further to $103.9 billion with 3.27 million car sales volume and an average revenue per unit of $32,664. Our bearish outlook for the segment is based on the changing consumer preferences in North America towards SUVs and the declining passenger car market in the country. Sales from the international segment (ex-China) are expected to be $22.7 billion, slightly higher than 2017 with 1.27 million volume sales and $17,819 revenue per unit. Sales from China are expected to remain close to its 2017 level of $1.98 billion. The company is fairly optimistic about its revenue from its financing segment despite an environment of rising interest rates. Rising wages in the U.S. might offset the impact of higher interest rates in the country and enable the company to benefit from its expanded leasing and prime lending programs in the whole of North America. Overall, we expect the financial segment of the company to report a revenue of $12.8 billion, ~5% higher than 2017.

Thus, the aforementioned estimates result in a fair value estimate of $37.60 for the company’s stock, which is close to its current market price. We do not expect the company’s share price to display significant growth in the current year unless the company surprises the market with better than expected sales figures.

 

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