General Motors has been one of the best performing stocks of the major auto companies this year. Its value has risen by around 20 percent since the beginning of the year, which can be attributed to improved profitability and higher truck sales. By comparison, the share price of its competitor Ford lost 17 percent in the same period.
GM recently reported stronger-than-expected results for the second quarter of 2024. Revenue rose 7.2% year-over-year to $48 billion, setting a record for the quarter. Earnings per share reached $3.06, beating consensus estimates by nearly 10%. In addition, the company raised its full-year guidance and now projects adjusted operating profit between $13 billion and $15 billion, up from the previous forecast of $12.5 billion to $14.5 billion. In the second quarter, the company sold 696,086 vehicles, up 0.6% year-over-year.
In particular, full-size truck sales rose 6% year over year, with 229,000 units sold. GM is gaining ground in the lucrative pickup truck market, posting a 5% increase in truck sales last quarter. This trend is beneficial for GM, as rising sales of high-margin pickups and SUVs under the Chevrolet and GMC brands are likely to boost profitability. In addition, GM’s new contract with the United Auto Workers union last November will likely have a smaller than expected impact on the company’s earnings to date. While wages rose about 11% when the UAW approved the new contract, GM’s increase in operating profit guidance suggests the company is absorbing these costs relatively comfortably.
Still, there are warning signs in the U.S. auto market. Retail auto sales have declined as consumer confidence wanes and high interest rates make vehicle financing more expensive. According to JD Power, the average transaction price for new cars fell 2.6% year over year to $44,300 in July, due to increased incentives and rebates from manufacturers. In addition, the U.S. labor market is showing signs of slowing: nonfarm payrolls rose by just 114,000 in July, well below the 179,000 reported in June and below consensus estimates. This economic slowdown could further impact consumer spending and the auto market. The auto industry is likely to see a normalization in prices after a period of undersupply and unprecedented inflation. GM’s full-year forecast also suggests a possible earnings slowdown in the second half of the year. While this could be due to fewer production days and higher costs associated with switching to newer models, it could also be a sign of a slowdown in the economic environment.
GM stock has seen a 15% gain from $40 in early January 2021 to around $45 now, while the S&P 500 has seen a gain of about 40% over that roughly 3-year period. However, GM stock’s rise has been far from consistent. The stock’s returns were 41% in 2021, -43% in 2022, and 7% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that GM lagged behind the S&P in 2022 and 2023.
Consistently better than the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for heavyweights in the consumer discretionary sector such as AMZN, TSLA and HD and even for mega-cap stars GOOG, MSFT and AAPL. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride, as shown by the HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GM find itself in a similar situation as it did in 2022 and 2023 and perform worse than the S&P in the next 12 months – or will there be a sharp jump?
We have a price estimate of $43 for GM, which is about the current market price. Read our analysis on Rating of General Motors: Expensive or cheap For more information on the factors that influence our price estimate for GM, please visit our dashboard at General Motors sales: How GM makes money. In the short term, GM could continue to benefit from a higher share of truck sales. In addition, the slowdown in the electric vehicle market should also benefit traditional players like GM, as they have more time to make money from gasoline-powered vehicles while investing in the long-term development of electric vehicles. However, concerns about the broader global economy and weaker consumer spending could impact the stock.
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