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General Motors (GM) Dips 11% Since Q2 Results: Time to Buy?
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U.S. legacy automaker General Motors (GM - Free Report) reported second-quarter 2024 results on Jul 23, before the opening bell. Since then, shares of the company have declined 11% despite better-than-expected earnings and sales and a raised full-year outlook. Investors are seemingly disappointed by weak China results, scaled-back electric vehicle (EV) plans and a $600 million charge for the struggling Cruise autonomous vehicle (AV) unit. Does the recent dip present a buying opportunity? Or is more correction on the horizon? Before discussing that, let’s take a closer look at the highlights of GM’s latest quarterly results.
6 Key Takeaways From GM’s Q2 Results
Impressive Top and Bottom-Line Numbers: GM reported earnings per share of $3.06, which surpassed the Zacks Consensus Estimate of $2.67 and came in higher than $1.91 reported in the year-ago quarter, delivering an earnings surprise of 14.6%. Revenues of $47.97 billion beat the consensus mark by 5.63% and rose from $44.75 billion a year ago. The outperformance can be largely attributed to the impressive results of the GMNA (GM North America) segment.
Raised Outlook: For 2024, GM now forecasts adjusted EBIT of $13-$15 billion, up from $12.5-$14.5 billion. Adjusted EPS is expected to be in the range of $9.5-$10.5, up from $9-$10. Adjusted automotive free cash flow is projected in the band of $9.5-$11.5 billion, higher than the previous forecast of $8.5-$10.5 billion.
Buyback Program: Adjusted automotive free cash flow was $5.3 billion. During the second quarter of 2024, GM bought back $1 billion of shares, and in June, it authorized an additional $6 billion for share buyback, indicating confidence in its financial stability and future performance.
Struggles in China: On the flip side, unexpected losses in China spooked investors. After incurring a loss of $106 million from China operations in the first quarter of 2024, GM had expected to return to profitability in the region by the second quarter. However, it posted a loss of $104 million in the quarter under review amid fierce competition from local and foreign automakers. What’s worse, GM’s CEO Mary Barra expects the rest of the year to remain challenging as the headwinds are not likely to ease.
Slowdown in EV Plans Despite Sales Growth: On the earnings call, Barra announced a second delay in the opening of a Michigan EV truck factory to mid-2026 and postponed the launch of Buick's first EV, initially slated for 2024. Despite a 40% year-over-year increase in EV deliveries in the quarter under discussion, GM is slowing investments to match demand, affected by high prices and limited charging infrastructure. Recently, GM’s closest peer, Ford (F - Free Report) , also scaled back EV plans, opting to expand an Ontario factory for combustion-engine trucks instead.
Cruise Challenges: GM’s AV unit, Cruise, faced a setback with an indefinite delay in the production of its self-driving car Origin. The company recorded a nearly $600 million charge in the second quarter of 2024 for abandoning Origin. Instead, Cruise will utilize GM’s Chevrolet Bolt, which is set to be relaunched next year, for its self-driving taxis.
Assessing GM’s Potential
Well, Barra’s cautious commentary on GM’s China business is concerning. The company is restructuring its operations in the country after efforts to cut costs and inventories fell short. Also, near-term challenges prevail in improving its EV profitability. CFO Paul Jacobson anticipates EV profitability on a contribution-margin basis once production hits 200,000 units by the fourth quarter.
Despite these near-term concerns, GM remains a formidable player in the automotive industry. It is the top-selling automaker in the United States, benefitting from strong demand for its quality pickups and SUVs, which is driving profit growth. The company is also optimistic about its EV business, with the Ultium Drive system and battery plants in Ohio, Tennessee and Lansing expected to enhance its e-mobility capabilities in the long term.
GM’s existing and upcoming EV offerings, including Cadillac Celestiq, Chevrolet Silverado EV, Cadillac Escalade IQ, Chevrolet Blazer EV, Chevrolet Equinox EV, Cadillac Lyric, GMC Hummer EV SUV and pickup, GMC Sierra EV, Cadillac Optiq and BrightDrop Zevo, are expected to drive the company’s EV momentum.
Additionally, GM is on track to achieve its $2 billion net cost reduction program by the end of 2024 and has sufficient cash reserves to handle short-term challenges, with total automotive liquidity of $35.8 billion as of Jun 30, 2024.
Should Investors Buy GM Stock Now?
Despite having dipped 11% in the last three trading sessions, GM is up 23% year to date, handily outperforming its industry and its peers like Ford and Stellantis (STLA - Free Report) .
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, General Motors is trading relatively cheap. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.28, below its median of 0.34 over the last five years. It is also trading at a discount compared to the industry’s 1.53. The company has a Value Score of A.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GM’s 2024 and 2025 EPS implies a 24% and 2% uptick, respectively, on a year-over-year basis. Encouragingly, GM is also witnessing northbound estimate revisions for the current and the next year.
Image Source: Zacks Investment Research
GM's strategic focus on cost reduction, cash liquidity, and its evolving EV and AV initiatives position it well for future growth. Given the company’s strong fundamentals, attractive valuation and positive estimate revisions, we believe investors should consider parking their cash in General Motors at its current price levels for solid long-term returns.
Image: Bigstock
General Motors (GM) Dips 11% Since Q2 Results: Time to Buy?
U.S. legacy automaker General Motors (GM - Free Report) reported second-quarter 2024 results on Jul 23, before the opening bell. Since then, shares of the company have declined 11% despite better-than-expected earnings and sales and a raised full-year outlook. Investors are seemingly disappointed by weak China results, scaled-back electric vehicle (EV) plans and a $600 million charge for the struggling Cruise autonomous vehicle (AV) unit. Does the recent dip present a buying opportunity? Or is more correction on the horizon? Before discussing that, let’s take a closer look at the highlights of GM’s latest quarterly results.
6 Key Takeaways From GM’s Q2 Results
Impressive Top and Bottom-Line Numbers: GM reported earnings per share of $3.06, which surpassed the Zacks Consensus Estimate of $2.67 and came in higher than $1.91 reported in the year-ago quarter, delivering an earnings surprise of 14.6%. Revenues of $47.97 billion beat the consensus mark by 5.63% and rose from $44.75 billion a year ago. The outperformance can be largely attributed to the impressive results of the GMNA (GM North America) segment.
Raised Outlook: For 2024, GM now forecasts adjusted EBIT of $13-$15 billion, up from $12.5-$14.5 billion. Adjusted EPS is expected to be in the range of $9.5-$10.5, up from $9-$10. Adjusted automotive free cash flow is projected in the band of $9.5-$11.5 billion, higher than the previous forecast of $8.5-$10.5 billion.
Buyback Program: Adjusted automotive free cash flow was $5.3 billion. During the second quarter of 2024, GM bought back $1 billion of shares, and in June, it authorized an additional $6 billion for share buyback, indicating confidence in its financial stability and future performance.
Struggles in China: On the flip side, unexpected losses in China spooked investors. After incurring a loss of $106 million from China operations in the first quarter of 2024, GM had expected to return to profitability in the region by the second quarter. However, it posted a loss of $104 million in the quarter under review amid fierce competition from local and foreign automakers. What’s worse, GM’s CEO Mary Barra expects the rest of the year to remain challenging as the headwinds are not likely to ease.
Slowdown in EV Plans Despite Sales Growth: On the earnings call, Barra announced a second delay in the opening of a Michigan EV truck factory to mid-2026 and postponed the launch of Buick's first EV, initially slated for 2024. Despite a 40% year-over-year increase in EV deliveries in the quarter under discussion, GM is slowing investments to match demand, affected by high prices and limited charging infrastructure. Recently, GM’s closest peer, Ford (F - Free Report) , also scaled back EV plans, opting to expand an Ontario factory for combustion-engine trucks instead.
Cruise Challenges: GM’s AV unit, Cruise, faced a setback with an indefinite delay in the production of its self-driving car Origin. The company recorded a nearly $600 million charge in the second quarter of 2024 for abandoning Origin. Instead, Cruise will utilize GM’s Chevrolet Bolt, which is set to be relaunched next year, for its self-driving taxis.
Assessing GM’s Potential
Well, Barra’s cautious commentary on GM’s China business is concerning. The company is restructuring its operations in the country after efforts to cut costs and inventories fell short. Also, near-term challenges prevail in improving its EV profitability. CFO Paul Jacobson anticipates EV profitability on a contribution-margin basis once production hits 200,000 units by the fourth quarter.
Despite these near-term concerns, GM remains a formidable player in the automotive industry. It is the top-selling automaker in the United States, benefitting from strong demand for its quality pickups and SUVs, which is driving profit growth. The company is also optimistic about its EV business, with the Ultium Drive system and battery plants in Ohio, Tennessee and Lansing expected to enhance its e-mobility capabilities in the long term.
GM’s existing and upcoming EV offerings, including Cadillac Celestiq, Chevrolet Silverado EV, Cadillac Escalade IQ, Chevrolet Blazer EV, Chevrolet Equinox EV, Cadillac Lyric, GMC Hummer EV SUV and pickup, GMC Sierra EV, Cadillac Optiq and BrightDrop Zevo, are expected to drive the company’s EV momentum.
Additionally, GM is on track to achieve its $2 billion net cost reduction program by the end of 2024 and has sufficient cash reserves to handle short-term challenges, with total automotive liquidity of $35.8 billion as of Jun 30, 2024.
Should Investors Buy GM Stock Now?
Despite having dipped 11% in the last three trading sessions, GM is up 23% year to date, handily outperforming its industry and its peers like Ford and Stellantis (STLA - Free Report) .
YTD Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, General Motors is trading relatively cheap. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.28, below its median of 0.34 over the last five years. It is also trading at a discount compared to the industry’s 1.53. The company has a Value Score of A.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GM’s 2024 and 2025 EPS implies a 24% and 2% uptick, respectively, on a year-over-year basis. Encouragingly, GM is also witnessing northbound estimate revisions for the current and the next year.
Image Source: Zacks Investment Research
GM's strategic focus on cost reduction, cash liquidity, and its evolving EV and AV initiatives position it well for future growth. Given the company’s strong fundamentals, attractive valuation and positive estimate revisions, we believe investors should consider parking their cash in General Motors at its current price levels for solid long-term returns.
General Motors currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.