GM Deals More Pickups, Sending Its Stock Higher

Investing

Published: April 23, 2024 11:08 am

General Motors (NYSE: GM) is making a splash in the markets today after reporting better-than-expected first quarter earnings. GM, which beat on both the top and bottom lines, is being rewarded with a nearly 5% gain on the day, thrusting the stock to above $45 and within inches of its 52-week high.

GM experienced several pockets of strength last quarter. The automaker saw rising U.S. demand for its popular pickup trucks, while resilient consumer spending buoyed its quarterly profit by nearly 25%. But similar to other automakers, including Tesla (Nasdaq: TSLA), GM faced weakness in the China market. Overall, demand for GM’s gas-powered vehicles, especially pickup trucks, continues to prop up performance as the company vies for market share in the challenging EV market.

GM bulls were also emboldened after the Detroit automaker lifted its full-year guidance, a sign that the company is expecting the market tailwinds to overcome any headwinds.

Operating on All Cylinders

GM, a dividend-paying stock, reported Q1 EPS of $2.62, speeding past consensus estimates of $2.12. Revenue of $43 billion increased almost 8% year-over-year and surpassed analyst estimates of $40.67 billion. GM’s North American business appears to be operating on all cylinders, as evidenced by a 7.4% increase in the business’s adjusted earnings to $3.84 billion.

While automaker pricing wars have gripped China, GM was able to keep North American pricing relatively steady, resulting in a better-than-expected profit margin of nearly 11%.

In its outlook, GM strengthened its forecast for automotive free cash flow, increasing it from expectations of $8 billion-$10 billion to a range of $8.5 billion-$10.5 billion.

But when you factor in China, it’s a tale of two markets for GM, as it is for rival automakers. GM CEO Mary Barra said the automaker has no intentions of leaving China amid a challenging market environment for the industry.

Despite suffering an operating loss of roughly $100 million in China, a business that was once profitable for the company, GM performed better in the region than expected in the face of heightened competition and changing consumer preferences. GM finance chief Paul Jacobson maintained his guidance for positive variable profits in the EV segment by H2 2024. The company is also eyeing a profit in China this year.

Is GM a Buy in 2024?

Wall Street analysts are rushing to the spotlight for their ‘I told you so’ moment. Among them, Wedbush Securities says GM’s “long await turnaround” has begun.

But CFRA’s Garrett Nelson points out the EV market remains “extremely saturated,” warning that GM’s cash flow could falter as the company pours money into EVs. With a dividend yield of 1.11%, GM has been known to halt dividend distributions and stock buybacks as needed.