If General Motors (GM) shares trade near their 2024 highs, does this mean General Motors is too richly valued now? Not at all, as the company’s earnings are sufficiently robust to justify the stock price, even after a recent rally. All in all, I am bullish on GM stock because General Motors is a very reasonably valued business but also a powerful earnings beater.
Headquartered in Detroit, General Motors manufactures conventional and electric vehicles. Until September, interest rates stayed at a high level, making it more difficult for consumers to afford auto loans. That’s been a problem for General Motors, no doubt.
Yet, JPMorgan Chase (JPM) analyst Ryan Brinkman declared that General Motors is “on a roll.” Brinkman even assigned GM stock an Overweight rating. Does General Motors really deserve such a bullish assessment after an extended period of high interest rates? After delving into the data, you’ll surely agree that this iconic American automaker is, indeed, “on a roll” in 2024.
General Motors Chief Financial Officer (CFO) Paul Jacobson boldly stated, “Our year-over-year performance has been very strong,” after the automaker released its third-quarter 2024 results and forward guidance. Jacobson’s confidence is backed up by the data, though. First of all, General Motors generated revenue of $48.8 billion, up 10.5% year-over-year. Furthermore, this result beat the analysts’ consensus estimate of $44.7 billion in quarterly revenue.
General Motors’ bottom-line stats also support Jacobson’s confident stance, as well as Brinkman’s “on a roll” remark. For 2024’s third quarter, the automaker reported adjusted earnings of $2.96 per share. That’s up 29.8% year-over-year and far ahead of Wall Street’s consensus forecast of $2.38 per share in adjusted earnings.
In addition, General Motors posted a $4.1 billion operating profit, while analysts had only expected $3.3 billion. In other words, this was a truly outstanding quarter for General Motors, even though interest rates were still elevated in Q3. Now, just think about how a series of interest-rate cuts in late 2024 and 2025 could help General Motors accelerate its sales and profits even faster. There’s no guarantee that this will happen, but it’s a possibility worth considering.
This was a beat-and-raise report for General Motors, as the company raised its Fiscal Year 2024 adjusted EPS guidance range to $10-$10.50. Previously, the company’s outlook called for 2024 EPS of $9.50-$10.
That might not even be the most interesting guidance hike, however. General Motors also raised its full-year 2024 adjusted automotive free cash flow (FCF) outlook to $12.5 billion-$13.5 billion. That’s significantly higher than the company’s previous guidance range of $9.5 billion-$11.5 billion.
Again, there are no guarantees that the reality will meet or exceed the expectations. Nonetheless, General Motors and its management remain optimistic. On this topic, Jacobson explained, “We’ve been able to grow retail share with above average prices, below average incentives and well managed inventory. This has put us in a position to update guidance once again.” There will be doubters and skeptics, but Jacobson has the aforementioned Q3-2024 results to back up his confident contentions.
I’m a value hunter, and maybe so are you. It’s tempting to assume that General Motors would be over-valued after the post-earnings rally in GM stock. You may have noticed that the General Motors share price zoomed past $50, and the stock is up 80% over the past 12 months.
You don’t have to just rely on the stock’s price action, however. As the old saying goes, price is what you pay, but value is what you actually get. We just discussed General Motors’ strong bottom-line results, and they are highly relevant when assessing the company’s value.
Even after the share-price rally, General Motors’ adjusted (non-GAAP) trailing 12-month price-to-earnings (P/E) ratio is still quite reasonable at just 5.44x. For reference, the sector median P/E ratio is 14.55x. Thus, we can conclude that General Motors’ earnings justify the company’s seemingly elevated share price.
On TipRanks, GM comes in as a Moderate Buy based on 10 Buys, six Holds, and three Sells assigned by analysts in the past three months. The average General Motors stock price target is $55.71, implying 5.67% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell GM stock, the most accurate analyst covering the stock (on a one-year timeframe) is Dan Levy of Barclays (BCS), with an average return of 24.59% per rating and a 68% success rate.
General Motors beat the Street’s top-line and bottom-line forecasts while demonstrating significant growth in 2024’s third quarter. Additionally, the company’s management anticipates a strong earnings performance for the full year of 2024.
Meanwhile, value-focused investors don’t need to worry too much about General Motors being too richly valued, even after the share-price rally. Consequently, I’m definitely bullish about General Motors’ future prospects and would consider a share position in GM stock.
