Will GM Deliver An Earnings Beat?

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General Motors (NYSE:GM) is expected to publish its Q2 2022 results on Tuesday, July 26. We expect GM’s revenue for the quarter to come in at about $35.8 billion, marking an increase of about 5% year-over-year. This would be ahead of the consensus estimate of $35.4 billion. We project that earnings will stand at about $1.45 per share, compared to a consensus estimate of $1.43. So what are some of the trends that are likely to drive the company’s results? See our interactive dashboard analysis on General Motors Earnings Preview for more details on how GM’s revenues and earnings are likely to trend for the quarter.

GM has provided its Q2 sales numbers for the U.S., noting that its deliveries dipped 15% year-over-year to 582,401 vehicles, due to the ongoing supply chain constraints and semiconductor shortage. However, GM is actually gaining market share, considering that the likes of Toyota and Hyundai actually saw steeper declines in deliveries over the quarter. Now we expect the decline in volumes to be more than offset by stronger pricing, as GM has been prioritizing the production of more expensive vehicles and trucks given the limited supply of components. For instance, the company’s full-size pickup trucks, the Chevrolet Silverado and GMC Sierra, apparently saw their retail market share rise to 44% over Q2. GM saw some headwinds in the Chinese market over Q2, given the Covid-19-related lockdowns in the country. GM previously indicated that it delivered about 484,000 vehicles in the country, down by 35.5% versus last year. Now, GM’s margins could also remain under some pressure due to rising inflation and costs. Over Q1, the company’s operating margins declined by 240 basis points year-over-year to 11.2%, and it’s possible that we could see similar trends in Q2 as well.

While GM stock could move higher post the results, we also think that the stock is fundamentally undervalued. To be sure, there are near-term concerns for the stock, including the strong possibility of a coming recession in the U.S.  which typically hurts automotive demand. However, we think GM stock is well placed even in the event of a downturn. GM’s deliveries have already been sluggish over 2020 and 2021, due to the Covid-19 pandemic and the supply issues and there may not be too much downside here. Moreover, GM stock is already down by over 48% year-to-date, currently trading at about $32 per share. This translates into just about 5x projected 2022 earnings, which is a reasonable multiple, in our view. 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%. We have a $66 price estimate for GM, which is considerably 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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With inflation rising and the Fed raising interest rates, GM has fallen 48% this year. Can it drop more? See how low can GM stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jul 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 GM Return 10% -41% 0%
 S&P 500 Return 5% -16% 78%
 Trefis Multi-Strategy Portfolio 10% -16% 234%

[1] Month-to-date and year-to-date as of 7/21/2022
[2] Cumulative total returns since the end of 2016

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