Down 12% YTD Will General Motors Q3 Earnings Help It Rebound?

General Motors
GM
is expected to publish its Q3 2023 results on October 24, reporting on a quarter that saw the company’s U.S. deliveries witness strong gains amid a favorable comparison with Q3 2022 when supply chain issues impacted sales. We expect revenue for the quarter to come in at about $44 billion, slightly ahead of consensus estimates and up about 4.5% versus last year. We expect earnings to stand at about $1.93 per share, slightly ahead of consensus estimates. See our analysis of GM Earnings Preview for a closer look at what to expect from GM stock for the quarter.

Amid this financial backdrop, GM stock has faced a notable decline of 25% from levels of $40 in early January 2021 to around $30 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the decrease in GM stock has been far from consistent. Returns for the stock were 41% in 2021, -43% in 2022, and -12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 13% in 2023 – indicating an underperformance for the ticker in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GM face a similar situation as it did in 2022 and 2023 and lose value over the next 12 months – or will it see a recovery?

Although the macro picture is looking a bit more challenging for the automotive industry, due to rising interest rates, stricter credit standards, and concerns about the U.S. economy and consumer spending, GM’s delivery performance over Q3 was pretty solid with sales in the U.S. expanding by 21% year-over-year led by growth of its GMC lineup and pickup trucks such as the Silverado and the Buick brand. While the ongoing strike by the United Auto Workers union against the Detroit automakers began in mid-September, it did not have a material impact on GM’s Q3 delivery numbers. GM’s EV sales are also picking up a bit with sales rising 28% versus the second quarter led by improving supply. We expect GM’s quarterly margins to be aided by stronger volume, cooling inflation, and higher sales of the company’s full-size pickup trucks.

GM stock has fared poorly this year, falling by 12% year-to-date due to concerns about rising rates and the ongoing strike by the UAW which is likely to impact the company’s performance over the holiday quarter. However, we think the stock is reasonably good value at current levels of about $31 per share or about 4x consensus 2023 earnings. GM also appears optimistic about its long-term prospects, previously noting that it intends to roughly double revenue to between $275 billion and $315 billion by 2030, compared to about $157 billion in 2022, driven in part by growth in EVs, software, and self-driving technology. We remain bullish on GM stock with a $43 price estimate, which is well ahead of the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money.

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