Is Now a Good Time to Add General Motors Stock to Your Portfolio?
The automotive industry has witnessed dramatic growth due to advanced technology integration. Currently, there are 1.2 million electric vehicles (EVs) in use in the United States, which is expected to be 18.7 million by 2030.
Prominent car maker General Motors Company’s (GM) bottom line beat Wall Street expectations. The company raised its fiscal year 2022 guidance and projects full-year 2022 adjusted automotive free cash flow to increase to $10-11 billion from its previous guidance of $7-9 billion.
Despite economic instability and rising interest rates, the company stressed that demand for its products remains strong. In the next three years, GM plans to move aggressively toward EV-market leadership as EV adoption is expected to approach 20% of U.S. industry sales in 2025.
GM has gained 2.3% over the past month, closing its last trading session at $39.75.
Here is what could shape GM’s performance in the near term:
Favorable Recent Developments
On November 17, 2022, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), signed an agreement for the long-term supply of battery-grade nickel sulfate to enhance North American EV supply chains. This deal is expected to help GM reach its target of building 1 million EVs annually in North America in 2025.
Also, on November 16, 2022, GM and Nel Hydrogen US, a subsidiary of Nel ASA, entered into a joint development agreement. This agreement will merge GM’s fuel cell expertise and NEL’s deep knowledge of electrolyzers, forming cost-efficient renewable hydrogen sources.
In its fiscal third quarter ended September 30, 2022, GM’s total net sales and revenue came in at $41.89 billion, up 56.4% year-over-year, with its automotive sales and revenue at $38.70 billion, representing a rise of 65.2% year-over-year.
Moreover, its adjusted net earnings rose 47.5% year-over-year to $3.28 billion, while its adjusted EPS increased 48% year-over-year to $2.25.
On October 24, GM declared its quarterly dividend on the company's outstanding common stock of $0.09 per share, payable to shareholders on December 15, 2022. Its current annual dividend of $0.36 yields 0.91%, while its four-year average dividend yield is 2.21%.
Favorable Analyst Estimates
PFE’s consensus EPS estimate of $1.67 for the fiscal fourth quarter ending December 2022 represents a 23.7% improvement year-over-year. The consensus revenue estimate of $40.84 billion for the same quarter represents a 21.6% increase from the prior-year quarter.
Also, GM’s revenue is expected to increase 21.4% year-over-year to $154.22 billion in the current fiscal year ending December. Its revenue is likely to rise 1.1% from last year to $7.15 in the current year.
Additionally, the stock surpassed its consensus EPS estimates in three of four trailing quarters, which is impressive.
In terms of forward non-GAAP P/E, GM is trading at 5.56x, which is 56.4% lower than the industry average of 12.76x. Its forward Price/Cash flow multiple of 2.97 is 72.4% lower than the industry average of 10.78. In terms of forward Price/Book, the stock is currently trading at 0.85x, 69.2% lower than the 2.74x industry average.
GM’s trailing-12-month EBIT margin of 8.17% is 3.5% higher than the industry average of 7.89%, while its trailing-12-month EBITDA margin of 12.24% is 10.7% higher than the industry average of 11.05%.
The stock’s trailing-12-month levered FCF margin of 3.34% is 147.2% higher than the industry average of 1.35%. Its trailing-12-month net income margin of 6.57% is 27.8% higher than the industry average of 5.14%.
Moreover, its trailing-12-month ROCE of 14.45% is 8.9% higher than the industry average of 13.27%, and its trailing-12-month CAPEX/Sales of 10.94% is 260.8% higher than the industry average of 3.03%.
POWR Ratings Reflect Promising Outlook
GM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has an A grade for Growth, consistent with its solid financials in the fiscal third quarter.
Its B grade for Sentiment is in sync with the favorable analyst estimates. And its lower-than-industry valuation multiples complement its B grade for Value.
GM is ranked #20 in the 61-stock Auto & Vehicle Manufacturers industry.
Click here to access the additional POWR Ratings for GM for Momentum, Stability, and Quality.
GM’s robust profitability in the face of macro headwinds looks promising. Moreover, the stock currently trades above its 50-day and 200-day moving averages of $36.79 and $38.38, respectively, indicating an uptrend. Hence, we think this would be a wise time to add GM to your portfolio.
How Does General Motors Company (GM) Stack up Against Its Peers?
While GM has an overall POWR Rating of B, check out these other stocks within the same industry with an A (Strong Buy) rating: Isuzu Motors Limited (ISUZY), Suzuki Motor Corp. ADR (SZKMY), and Subaru Corporation (FUJHY).
GM shares were trading at $39.77 per share on Wednesday afternoon, up $0.02 (+0.05%). Year-to-date, GM has declined -32.01%, versus a -15.24% rise in the benchmark S&P 500 index during the same period.