GM Posts An Earnings Beat, The Stock Is Still Trading Cheap

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General Motors

General Motors (NYSE:GM) posted a stronger than expected set of Q1 FY 2022 results and raised its full-year earnings guidance, showing signs of a strong comeback after a relatively muted 2020 and 2021. Quarterly revenues came in at about $36 billion, up 10.7% compared to the previous year. Growth was driven by higher wholesale deliveries in North America and stronger average pricing, as the company continued to prioritize more expensive vehicles, selling a higher mix of pricier full-size trucks and SUVs amid strong demand and tight inventory conditions. For perspective,  the average transaction price for retail sales rose by $10,200 in the U.S. with prices for trucks rising by an average of 10%  and crossover prices rising 20%. However, GM’s margins have come under some pressure, due to rising inflation and component supply shortages, with operating margins declining 240 basis points versus last year to 11.2%. Net Income stood at $2.94 billion, down from $3.02 billion in Q1 2021. However, the outlook for GM is looking better. The company says that semiconductor supply improved in Q1 versus Q4 2021, and things are expected to get better still through the year, with GM indicating that it could produce 25% to 30% more vehicles in 2022 versus 2021. While GM reiterated its 2022 operating income and cash flow guidance, it raised its EPS forecast range from $6.50 to $7.50, up from prior guidance in the range of $6.25 to $7.25.

While GM stock gained about 2% in after-hours trading on Tuesday, following the earnings report, it remains down by over 35% year-to-date, trading at about $39 per share currently. However, we think the stock is a pretty good value at current levels trading at just about 5.5x the mid-point of its projected 2022 earnings. Growth is also likely to pick up meaningfully this year, with revenue rising by about 20% per our estimates. The company is also looking at more aggressive long-term growth targets, as it electrifies its model lineup, noting that it intends to double revenue to between $275 billion and $315 billion by 2030 while expanding margins to between 12% to 14%.

Now there are some near-term concerns. With inflation surging, the Fed is tightening monetary policy with more aggressive interest rate hikes looking likely in the coming quarters. This could result in a downcycle for the U.S. economy and automotive sales. That being said, GM’s sales were already quite depressed over 2020 and 2021 (U.S. sales of around 2.3 million in 2021, compared to 3.2 million in 2019) due to the semiconductor shortage, so there may not be too much downside even in an economic downturn. We value GM stock at about $66 per share, which is about 65% ahead of the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM.  For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money.

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Returns Apr 2022
MTD [1]
YTD [1]
Total [2]
 GM Return -12% -35% 10%
 S&P 500 Return -8% -12% 86%
 Trefis Multi-Strategy Portfolio -8% -15% 233%

[1] Month-to-date and year-to-date as of 4/27/2022
[2] Cumulative total returns since the end of 2016

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