General Motors Co. (NYSE: GM) was featured in June as “Trumping Ford” for strategic investors. The call was not foreshadowing, nor was it any assured outcome. It’s just how the tea leaves were reading at the time. GM has now proven since June that it was the right strategic pick in the old GM-Ford pairs trade.
Now for the big question, after the positive earnings reaction — After the blow out earnings and guidance, and after nearly a 10% pop in its stock, does GM still offer much upside ahead for investors?
GM had already given a cushion to bulls and bears alike when it met with investors in early October. This was two weeks ahead of the third quarter earnings report that sent shares up 9.8% to $53.73. Some profit taking was seen the first day after and shares closed down 1.5% at $52.92.
We now know that GM has additionally raised earnings expectations heading into 2025. GM has also committed to “consistently return excess capital back to shareholders moving forward.” That followed a $10 billion accelerated share buyback announced a year ago after it signed its new labor agreement with the United Auto Workers union. Then it added even more shares to buy back during this summer.
Now GM is targeting to have less potentially than 1 billion outstanding shares at the end of 2025. And to make things even juicier, GM is valued at only about 5-times normalized 2025 earnings (EPS). And the common theme seems to be that GM doesn’t even need a super-strong economy nor a gangbuster auto market to keep making its numbers. That might even imply further “beat and raise” quarters are a favorable possibility based on today’s global snapshot.
Perhaps the biggest news in GM’s great earnings release was that free cash flow of $5.7 billion (ex-items) was nearly double most analyst expectations. This allows it to keep funding that $20 billion or so in return of capital to shareholders over the last two years.
GM does still have the China overhang and does still have its automated Cruise issues to work out. And while GM’s photo ops and a lot of talk is around electric vehicles (still expected to lose money to at least 2025), GM’s main driver is the strong pricing power in gas-powered trucks and SUVs.
ANALYSTS GETTING MORE BOLD
Multiple analysts on Wall Street have raised their price targets on GM. Even back in June, GM had some incredibly high analyst price targets with BofA’s $85 price objective (raised from $75 in July) and Citi’s $96 recent price target over the summer. The consensus analyst price target of $54.59 at the time implied over 16% upside in the summer. BofA’s investment rationale says:
Our Buy rating on GM is predicated on our view that the company remains a leader among the industry in its Core to Future transition. More specifically, GM’s ongoing execution and strength in its Core business continues to enable the company to step up its investments across EVs and AVs, further Future-proofing the business. Along these lines, GM continues to develop all the necessary components for the future of mobility services, which we believe may help unlock value over time.
Here are the adjustments that have been seen since GM reported such strong guidance:
- Barclays (reiterated Overweight) target to $70 from $64.
- JPMorgan (reiterated Overweight) target to $70 from $64.
- RBC (reiterated Outperform) target to $65 from $58.
- UBS (reiterated Buy) target to $62 from $58.
- Wedbush (reiterated Outperform) target to $60 from $55.
AND THE NEGATIVE-NELLIE CALLS
Wells Fargo and Morgan Stanley may have increased their respective price targets, but the two large brokerage and investment banking firms still have incredibly bearish and negative views on GM.
Wells Fargo reiterated its Underweight rating but raised its target to $38 from $33.
Morgan Stanley reiterated its Underweight rating but raised its target to $46 from $42.
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The FinViz consensus analyst price target currently shows $57.95, but that is barely up $3.00 from the $54.95 in June. GM’s stock was last seen trading at $53.35 at the time of this posting.
Oggonomics does not have formal ratings nor any formal price targets on GM or any other related stocks. None of the information provided should be interpreted as investment advice and this is not a recommendation to buy or sell a stock. Any decision to buy, sell, hold (or even short sell) is up to each investor and that decision should be made with a financial advisor.
