The earnings season shifts into high gear this week, with a host of companies scheduled to unveil quarterly results. We will soon be hearing from two legacy automakers — General Motors (GM Quick QuoteGM - Free Report) and Ford (F Quick QuoteF - Free Report) . GM will release its first-quarter 2024 results tomorrow, while Ford will report on Apr 24.

While GM topped earnings estimates in each of the trailing four quarters, F surpassed estimates in three and missed in one. Ahead of their upcoming reports, let’s analyse how these stalwarts stand.

While both companies are set to benefit from higher year-over-year retail sales in the United States in the quarter-to-be-reported, General Motors’ focus on fixed cost reduction is expected to aid profits. Meanwhile, Ford is spending high on modernization, including connectivity, IT and new product launches, which might limit margins.

Having said that, both companies have a solid standing in the auto space and have created massive markets for their offerings. So, the question arises: which of these legendary rivals should you invest in now?

Let’s find out by comparing valuation metrics, projected growth rates, share performance, growth strategies, financials and dividends. Also, what does the Zacks model say ahead of their earnings release?

Earnings Whispers

Our quantitative model suggests that the combination of the following two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Motors seems poised for an earnings beat as it carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +7.77%. However, an earnings beat is not certain for Ford as it carries a Zacks Rank #3 and has an Earnings ESP of -39.90%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stock Performance & Valuation

Year to date, GM has surged 18% while Ford has inched down 0.4%. Nonetheless, both stocks have outperformed the industry, which saw a decline of 35.4%.

YTD Performance

Image Source: Zacks Investment Research

Now, let’s take a look at the value both companies offer investors at current levels. Both stocks currently have a Value Score of A.

GM is trading at a forward sales multiple of 0.28X, below its median of 0.35X over the last five years. F’s forward sales multiple sits at 0.29X, at almost similar levels as GM’s and below its median of 0.31X over the last five years. Meanwhile, the industry’s forward sales multiple sits at 1.61X.

If we look at the Price/Earnings ratio, GM shares currently trade at 4.63X forward earnings, well off its 5-year high of 12.68X and below the median of 6.04X. Ford also trades at a discount relative to its past at 6.43X forward earnings. This is well below its 5-year high of 81.99X and 7.46X median. The industry’s forward earnings multiple sits at 27.27X.

Though both stocks are trading dirt cheap when compared to the industry, GM appears more attractive at the moment. While the price of Ford shares at $12.14 is significantly lower than General Motors’ $42.37 per share, GM offers more value considering the P/E and P/S metrics.

Assessing the Financials

Both the auto biggies have high liquidity to weather short-term headwinds and navigate economic cycles.

General Motors had total automotive liquidity of $36.3 billion as of Dec 31, 2023, including around $20 billion of cash/cash equivalents/marketable debt securities. Ford ended 2023 with around $29 billion in cash and more than $46 billion in liquidity. Ford’s superior liquidity profile provides a solid foundation for investment in Ford+ priorities.

In terms of leverage, GM’s long-term debt-to-capitalization stands at 54.8%, lower than F’s 69.9%, providing it more financial flexibility.

Long-Term Debt to Capital

Image Source: Zacks Investment Research

Deliveries

General Motors retained the U.S. auto sales crown in 2023, with full-year sales of 2.6 million units, up 14%. Ford sold roughly 2 million units in 2023, up 7.1% year over year. 

Buoyed by improving inventory levels and sustained demand for vehicles despite the high costs of borrowing, deliveries remained strong in the first quarter of 2024.

General Motors delivered 594,233 vehicles in the United States in the first quarter of 2024, with retail sales rising 6% year over year. Year-over-year retail sales of GM brands Buick, Chevrolet, Cadillac and GMC rose 10%, 6%, 9% and 3%, respectively.

Ford’s U.S. vehicle sales in the first quarter of 2024 totaled 508,803 units, up 7% year over year. Increasing demand for hybrid trucks and SUVs positioned the automaker to deliver its record quarterly hybrid sales. It sold 38,421 units of hybrid vehicles in the first quarter, up 42% year over year. 

Electrification Strides

With the initial euphoria associated with electric vehicles fading, GM and F have started scaling back their e-mobility plans, given lower-than-expected consumer adoption. Having said that, zero-emission vehicles still remain the future of mobility.  

General Motors plans to roll out 30 fresh EV models by 2025-end. Solid demand for GMC Hummer EV, Chevrolet Bolt EV and EUV, Cadillac Lyric, Equinox EV, Silverado EV, Sierra EV, Blazer EV and BrightDrop Zevo 600 is expected to buoy top-line growth. The firm’s modular battery platform, the Ultium Drive system, is aiding the transition to an all-electric portfolio down the road. GM’s battery plants in Ohio, Tennessee and Lansing are likely to scale up its e-mobility prowess. 

Ford’s EV offerings like Mustang Mach-E, E-Transit vans and F-150 e-pickup will boost shipments. Ford's EV segment is strategically positioned for robust growth through a multifaceted approach. Key strategies include scaling, leveraging digital capabilities for manufacturing efficiency and emphasizing vertical integration by insourcing critical components. 

Cost-Containment Efforts

GM’s efforts to cut costs are commendable. It is on track to deliver on its $2 billion net cost reduction program. The company reduced $1.4 billion of fixed costs, which were partially offset by $400 million of higher depreciation and amortization, resulting in a net cost reduction of $1 billion in 2023. It expects to further cut $1 billion in fixed costs this year. So, relative to 2022, GM’s fixed costs net of depreciation and amortization are likely to be $2 billion lower by 2024 end. Reduction of complexities across its current and near-term product programs is likely to generate additional savings of $200 million in 2024.

Ford prioritizes energy efficiency and aims for one of the lowest-cost batteries assembled in the United States. The Ford+ plan, with a deep focus on increasing profitability, bodes well. However, the company’s Model e segment—focused on EVs—is incurring massive losses. The segment’s loss amounted to $4.7 billion in 2023, owing to high investments in next-generation products. We expect loss in 2024 to widen to $5.4 billion due to higher spending related to production ramp-up, the establishment of manufacturing plants in Tennessee and Kentucky, and the development of next-gen products on a dedicated EV platform.

In 2023, GM and F’s operating margins came in at 5.4% and 3.1%, respectively. GM’s cost-cut efforts are yielding results.

Investor-Friendly Moves

Ford reinstated its dividends in late 2021 after suspending the same for more than a year and a half because of COVID-related disruptions. To investors’ delight, Ford declared a supplemental dividend of 18 cents per share for the first quarter of 2024 in addition to the regular payout of 15 cents/share.

Meanwhile, GM reinstated its dividend in the second half of 2022 after halting the same for more than two years. The company announced a $10 billion accelerated share repurchase program in November 2023 and a 33% dividend hike starting this year.

Going by the dividend yield, Ford clearly wins with an annual dividend yield of around 5%, compared to GM’s yield of more than 1%. F also has a healthy payout ratio of 30% compared to GM’s safer yet very conservative 5%. In the last five years, while GM has raised its dividend once, Ford has hiked it thrice.

Dividend Yield

Image Source: Zacks Investment Research

Growth Estimates

The Zacks Consensus Estimate for GM’s 2024 sales and EPS implies year-over-year growth of 0.84% and 18.75%, respectively. The estimate for EPS has moved north by 4 cents over the past seven days.

Meanwhile, the consensus mark for F’s 2024 EPS has moved 1 cent down over the past seven days and implies a decline of around 6% year over year. Estimates for sales imply a marginal increase of 0.80%.

Bottom Line

If you have to choose between these two auto heavyweights, General Motors seems a better pick now, given its U.S. auto market leadership, solid earnings history, northbound estimates revisions, a more manageable debt ratio, better margins and a steadfast commitment to reduce cuts.

GM is a “Buy” ahead of its first-quarter results as earnings estimate revisions have continued to rise for both fiscal 2024 and 2025. The company’s valuation stands out as well. GM holds promise for potentially exceeding earnings expectations as suggested by its Earnings ESP.

Considering these factors, parking your cash in General Motors seems prudent now. The company’s guidance in its upcoming report will be a large indicator of any further upside.