U.S. new car sales in 2015 rose to a record total of some 17.5 million units sold. The surge was the result of low unemployment (5% in December), low interest rates and low gasoline prices that put more cash in consumers’ pockets. Especially popular among U.S. car buyers were small sport utility vehicles and, as usual, pickup trucks.
General Motors Co. (NYSE: GM) had a very good year in 2015 and expects another in 2016. The carmaker raised its earnings forecast to a range of $5.25 to $5.75, a 25-cent hike on both ends, and added $4 billion to its share buyback program. GM also boosted its dividend by 6% to $0.38 per share. But 2016 is generally expected to be a relatively flat year for sales, and that curbed some of the enthusiasm from analysts. Here’s a sample:
- Goldman Sachs cut its price target from $46 to $40 and kept a Neutral rating on the stock.
- Deutsche Bank cut its price target from $37 to $34 and maintained a Hold rating.
- Bank of America Merrill Lynch reiterated a Buy rating and a $44 per share price objective.
The Merrill Lynch analyst elaborated:
No apparent abyss, but many are staring into it anyway … another very stellar for GM with a beat on EPS that drove full year 2015 adj EPS to $5.02. There has long been skepticism in GM’s ability to achieve $5/sh+ in annual earnings, which the company has now achieved. More importantly, GM expects earnings to accelerate further in 2016.
S&P Capital IQ maintained a $42 price target on GM stock, noting that product positioning in China helped the company gain share there while “North American performance, accounting for roughly all of net adjusted operating income for Q4, and more than 100% for the year.”
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Ford Motor Co. (NYSE: F) reported record annual pretax profit of $10.8 billion in 2015 and adjusted EPS of $1.93 on net income of $7.4 billion. January sales of the company’s best-selling F-150 pickups fell 5.2% year over year in what is traditionally the weakest month of the year for new car sales. Even at that, though, monthly sales topped industry analysts’ estimates.
Brokers and analysts also weighed in on Ford’s prospects for 2016:
BofA/Merrill Lynch has a $16 price objective based on estimated 2016 P/E of 8x, around the middle of the company’s historical range heading into a cyclical peak.
S&P Capital IQ maintains a Strong Buy rating on the stock with $17 price target. The firm’s 12-month target price of $17 is 8.6x estimated 2016 EPS. The analysts also note that “peer valuations are contracting, as the economic cycle matures, but we expect favorable mix to outweigh slower U.S. industry volume growth. … The $0.60 annual dividend is likely to be increased over time.
Merrill Lynch also offered this overview of the entire auto sector:
We believe that the accompanying valuation framework is one of the most important fundamental factors that should be considered when making investment decisions on the stocks in our coverage universe. However, given the extreme volatility in certain links of the auto value chain, investors should be cognizant that the stocks are sensitive to headlines and swings in expectations, especially in the short term. Buy: ABG, AN, AXL, BWA, CPRT, DLPH, F, GM, GPI, KAR, KMX, LEA, MGA, MPG, PAG, RACE, SAH
GM shares closed down 0.34% on Friday, at $28.54 in a 52-week range of $24.62 to $38.99. The consensus price target is $39.13, although the latest changes may not have been figured in yet.
Ford stock closed Friday at $11.45, down about 0.7% on the day, in a 52-week range of $10.44 to $16.74. The consensus price target on the shares is $16.25, but that may change too.
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